ERM Survey Finds ESG Ratings Drop to 31% as Investors Favour In-House Research

Corporate ESG ratings are losing their position as a preferred source of sustainability information for investment decisions, according to the ERM Sustainability Institute's Rate the Raters 2026 report. Only 31% of surveyed investors selected corporate ESG ratings among their three most useful sources of information, down from 53% in 2023. The findings suggest investors are increasingly turning to proprietary research, direct company engagement and underlying ESG data rather than relying on overall ratings scores.

The study surveyed 53 investment professionals between February and July 2026, representing organisations with approximately $23.5 trillion in combined assets under management. It also included 10 interviews with investors and industry leaders. Despite declining confidence in ratings, 58% of respondents reported using ESG ratings products and services at least once a week, indicating that these tools remain embedded in investment processes even as expectations change.

 

Investors Prioritise Research and Underlying ESG Data

 

In-house research emerged as the most useful source of corporate ESG information, selected by 54% of respondents, followed by direct company engagement at 50% and corporate sustainability reports at 40%. Underlying ESG information from third-party data providers was selected by 33%, compared with 31% for corporate ESG ratings. The results show a preference for information that investors can examine, compare and incorporate into their own assessment frameworks.

The report also found that 61.5% of respondents use ESG ratings as a basis for further internal research, while 59% use them to support engagement with companies. One Thailand-headquartered asset manager explained, "We use ratings as a screening tool, not an exclusion tool." This reflects a broader shift towards using ratings to identify potential risks and areas requiring investigation rather than treating the final score as a standalone investment decision.

 

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MSCI Leads Provider Rankings as Investor Trust Declines

 

MSCI ranked highest for both perceived quality and usefulness in the 2026 survey, receiving average scores of 3.50 and 3.58 out of five, respectively. CDP followed closely on quality with a score of 3.45, while EcoVadis ranked second on usefulness at 3.53. However, perceived quality and usefulness declined across most providers compared with 2023, suggesting investors have become more demanding about data reliability and analytical value.

Overall trust in ESG ratings also weakened, with the average investor trust score falling from 3.31 in 2023 to 3.05 in 2026. Half of the respondents gave ratings a moderate trust score of three out of five. Methodology transparency emerged as a major concern, with 93% identifying disclosure of methodology as highly important, followed by methodology quality at 91% and credibility of data sources at 87%. These findings point to increasing scrutiny of how ESG ratings are calculated and whether the underlying information is accurate and relevant to investment decisions.

 

Investors Become More Selective About ESG Data Providers

 

Although investors continue to use multiple ESG ratings providers, most rely on a relatively small group. Approximately 46% of respondents reported engaging with one or two providers, while 44% used between three and five. MSCI, Bloomberg and Morningstar Sustainalytics were among the most frequently selected sources of ESG data.

The report identifies subscription costs, overlapping datasets, integration challenges and vendor lock-in as important considerations when selecting providers. Investors are also showing interest in specialist firms offering more detailed information on climate risks, biodiversity, nature and human rights. For established ratings companies, broad market coverage alone may no longer be sufficient. Data accessibility, technical integration and subject-specific expertise are becoming more important factors in purchasing decisions.

 

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AI and Regulation Could Reshape ESG Ratings

 

Artificial intelligence is expected to play a growing role in how investors collect and evaluate sustainability information. Among respondents answering questions about future AI applications, 65.9% expected to use it to improve ESG data quality and validation, while 61.4% identified automated data collection and processing as a priority. Another 52.3% anticipated using AI for real-time monitoring of ESG-related events and controversies.

The report also highlights the influence of mandatory sustainability reporting and tighter regulation of ESG ratings providers. Investors want greater alignment with reporting standards, better disclosure of rating methodologies and stronger links between ESG factors and financial performance. For companies, the findings reinforce the importance of accurate public sustainability disclosures and effective communication with investors, since corporate information is increasingly assessed alongside external ratings.

The research indicates that ESG ratings are evolving from standalone assessments into components of broader investment research. While the survey represents a relatively small group of investment professionals and should not be treated as representative of every investor, its findings show clear pressure on ratings providers to improve transparency, data quality and usability. Their future value will depend increasingly on the information and analysis they provide behind the headline score.

 

Source: ERM Sustainability Institute