Do Commercial Ties Influence ESG Ratings? Evidence from Moody’s and S&P

EU Green Taxonomy Data – A First Vendor Survey

“…One conceivable explanation is a commercial conflict of interest due to the business model of certain vendor types. A possibly similar phenomenon has been described by Li et al (2022) for ESG ratings: Higher ratings were issued to existing paying clients of Moody's and S&P by raters Vigeo Eiris and RobecoSAM after their respective acquisition by Moody's and S&P, with the effect being stronger in line with the intensity of business ties to the acquirer.…”

“…Financial conflict of interest from data providers and rating agencies is a common phenomenon known from fields such as ESG ratings (Li, Lou and Zhang, 2022) and credit ratings (Strier, 2008).…”

Do Sustainability Signals Diverge? An Analysis of Labeling Schemes for Socially Responsible Investments

“…Another factor that may shape the future of GNPO labels is the credibility of competing signals. While the literature has not yet pointed to a “lenient” side of GNPO labels, recent studies have uncovered issues with ESG ratings, such as the problem of rewriting historical data, conflicts of interest resulting from common ownership, and commercial ties with rated companies (Berg et al, 2021; Li et al, 2022; Tang et al, 2022). In addition, the SFDR is not exempt from such concerns, as evidence suggests that some Article 9 funds include non-sustainable assets (Darpeix & Demartini, 2023).…”

“…Thus, if ESG ratings from different rating agencies diverge, then there's all the more reason to expect the scope of divergence between the signals of labels sponsored by these agencies and those sponsored by sources of a different nature to be even wider. This discussion is further fueled by recent studies that identify potential problems with ESG ratings, such as rewriting data to enhance past performance (Berg et al, 2021), conflicts of interest in ESG raters that may arise from common ownership (Tang et al, 2022), or commercial ties (Li et al, 2022) with rated firms. As a result, private-sector certifications may communicate different standards from those provided by GNPOs, and conflicting information might be communicated to individuals, leading to investor confusion (Brécard, 2014;Delmas et al, 2013;Horne, 2009).…”

“…The discussion is further fueled by recent studies that identify potential conflicts of interest in private ESG rating firms that may arise from common ownership (Tang et al, 2022) or 14 Pedersen et al (2021) designate these two types of investors as ESG aware and ESG motivated , respectively. commercial ties (Li et al, 2022) with rated companies. As a result, private-sector certifications might communicate different standards from those provided by independent organizations, and conflicting information might be communicated to individuals, leading to divergent conceptions regarding their objectives and requirements and, consequently, increasing investor confusion (Brécard, 2014).…”