The Arms Race in ESG Ratings: S&P Buys RobecoSAM Unit

MSCI and a few specialist firms once ruled the ESG rating roost, but not anymore. Moody’s and S&P are muscling in.

The hot new sector of environmental, social, and governance (ESG) ratings is witness to a lot of deal activity this year. Investors, fund managers, and regulators are pressing for data on companies’ performance on ESG, as concerns mount on sustainability. It’s no surprise, therefore, that S&P just purchased the ESG ratings arm of RobecoSAM, for an undisclosed amount.

Rating agencies are stepping out of their traditional role of providing credit ratings. They are now getting their foot in the door of the market for sustainability scores.

S&P / RobecoSAM stepping up the arms race

Moody’s set off the arms race in the nascent sector with its rapid-fire acquisitions earlier this year of Vigeo Eiris and later, Four Twenty Seven.

Vigeo Eiris is a Paris-based provider of ESG research and ratings. Four Twenty Seven is a publisher and provider of market intelligence on the economic risk of climate change.

S&P, another major ratings provider, partnered with RobecoSAM to create the Dow Jones Sustainability Index in 1999. S&P also leveraged its long association with RobecoSAM to offer its own “ESG Evaluation” in June this year of NextEra Energy Inc., an American energy company.

Now it’s gone the whole hog and acquired RobecoSAM’s ESG arm. The latter’s highly-regarded annual survey of corporate sustainability practices at about 5,000 companies will now be a part of the S&P stable.

Catalysts for the S&P – RobecoSAM deal

Investors received a rude awakening on the risks from climate change in the insolvency of California utility Pacific Gas & Electric. The company was held liable for damages from wildfires, to the tune of billions of dollars.

“Insight into an entity’s ability to effectively manage potential ESG risks, disruptions and opportunities is increasingly important to understanding whether a company will be successful in the long term,” says Susan Gray, Global Head of Corporate & Infrastructure Ratings, S&P Global Ratings.

The demand for data on sustainability compliance pushed turnover at MSCI’s ESG research division by 30% last year. Further, it’s on track to grow similarly this year too. Moreover, MSCI acquired climate research company Carbon Delta in September this year.

According to the Global Sustainable Investment Alliance, assets carrying a ‘sustainable’ label have surpassed $30 trillion.

Says Michael Jantzi, chief executive of Sustainalytics: “Global scale has become important.” Sustainalytics is an ESG-research company in which Morningstar has a 40% stake.

[Related Story: BofAML: Assets at European ESG Equity Funds Could Rise by €1 Trillion           ]

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