The race to embrace ESG ratings

The race to embrace ESG ratings

The race to embrace ESG ratings

Major investment firms are snapping up environmental, social and governance (ESG) research and ratings companies at a rapid clip — three hookups within just the past year. What do sustainability officers and financial officers need to know? Last month, investment research firm Morningstar took a 40 percent stake in in ESG company Sustainalytics. Steven Smit, head of sustainability at Morningstar, now serves on Sustainalytics’ board of directors. The organizations already collaborated last year on the Morningstar Sustainability Rating, which shows investors how well companies within their global and exchange-traded funds are managing ESG issues.

Last month, investment research firm Morningstar took a 40 percent stake in ESG company Sustainalytics. Steven Smit, head of sustainability at Morningstar, now serves on Sustainalytics’ board of directors. The organizations already collaborated last year on the Morningstar Sustainability Rating, which shows investors how well companies within their global and exchange-traded funds are managing ESG issues.

In January, investment solutions provider ISS bought IW Financial, a U.S. firm offering ESG research, consulting and portfolio management services, promising to “help asset management firms and other institutional clients identify risks, enhance productivity and increase revenues.”

The race to embrace ESG ratingsIn October, none other than the leading S&P Dow Jones Indices acquired Trucost, which has more than 15 years’ experience assessing carbon and environmental data and risk. This move commenced what Mike Wallace, managing director of sustainability advisory firm BrownFlynn, calls the “latest wave” of ESG firm acquisitions.

The “last wave” appeared in February 2009, when risk advisor RiskMetrics purchased Innovest, an ESG company founded in 1995. The merger was lauded for bringing together two firms with “deep expertise in the newly emerging field of climate governance and carbon management.” Later that year, RiskMetrics bought KLD Research & Analytics — which creates SRI (socially responsible investment) benchmarks — for $10 million in cash.

On its heels was Thomson Reuters’ purchase of Asset4, a Swiss firm collecting data on pollution, water use and violations of corporate governance from thousands of companies. And in March 2010, MSCI snapped up RiskMetrics Group.

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