Institutional Investors Criticized ESG Ratings
Research indicates a decline in perceived ESG quality as new regulatory regimes take effect across major markets.
Updated on Oct. 8, 2026 in Investing
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Institutional investors have reported a decline in the perceived quality of environmental, social, and governance (ESG) ratings. A survey of more than 50 institutional investors revealed the top-rated provider's score dropped from 4.2 in 2023 to 3.5 in 2026.
Why it matters
As ESG factors become increasingly tied to fiduciary responsibilities, investors are demanding greater transparency and reliability from rating providers. This growing sophistication is pushing regulators to implement stricter oversight to standardize the information used in investment decisions.
MSCI was the only firm among 13 assessed providers to improve its score, moving from seventh to first place in the rankings. This shift highlights a widening gap in service quality as the broader market struggles to maintain prior performance benchmarks.
The players
MSCI
MSCI is a global provider of equity, fixed income, and hedge fund stock market indexes, and multi-asset portfolio analysis tools.
ERM Sustainability Institute
The ERM Sustainability Institute acts as the research and thought leadership arm of the Environmental Resources Management consultancy group.
Financial Conduct Authority
The Financial Conduct Authority is the conduct regulator for financial services firms and financial markets in the United Kingdom.
The details
The ERM Sustainability Institute interviewed institutional investors to evaluate how providers are adapting to the modern investment landscape. While the overall quality has dipped, regulators in the EU and UK are introducing new frameworks to ensure ESG data aligns with official financial reporting standards.
Timeline
In 2023, the top-rated ESG provider reached a score of 4.2.
The EU ESG Ratings Regulation took effect in July 2026.
By 2026, the top-rated ESG provider score fell to 3.5.
The UK Financial Conduct Authority will launch a new regulatory regime by the end of 2026.
Market Dynamics
This decline in perceived quality reflects a structural adjustment within the investment sector as it pivots toward the standards set by the EU ESG Ratings Regulation. The industry is currently moving away from fragmented self-regulation toward a more rigid, government-backed oversight model.
Retail and institutional investors should anticipate more standardized and potentially comparable ESG metrics as regulatory pressure forces providers to improve data quality. This shift may lead to more consistent, albeit more scrutinized, sustainability-linked portfolio allocations in the coming year.
The takeaway
Investors should scrutinize the methodologies of their ESG data providers more closely as ratings become more volatile. Relying on a single provider may be insufficient as regulatory changes force a re-evaluation of industry performance across the board.
Further reading
Find more analysis on market oversight and fund metrics in our Investing section.
Source note: This article includes information reported by IPE.
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