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Low ESG Ratings Linked to Higher Delisting Risk

New research shows that firms with lower sustainability scores face a significantly higher probability of being delisted.

Updated on Oct. 30, 2026 in Investing

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Companies with lower ESG sustainability scores are increasingly being delisted from public exchanges, often transitioning into private equity ownership, researchers found. AI Illustration. Upload story photo >

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Should institutional investors prioritize ESG ratings even if it risks pushing companies into opaque private markets?

A study of 24,788 funds indicates that companies with declining sustainable fund ownership are more likely to be delisted from public markets. Once divested, these firms often transition into private equity ownership.

Why it matters

When companies are dropped by ESG investors, they frequently exit public exchanges for private markets that carry less stringent disclosure requirements. This shift reduces public visibility into the corporate governance and sustainability practices of these entities.

The study analyzed 5,699 stocks managed across 24,788 funds with a total of USD 24 trillion in assets. Researchers observed a 12-21% increase in the odds of delisting following a one standard deviation drop in sustainable fund portfolio weights.

The details

Researchers tracked ownership changes between sustainable and conventional investment vehicles to identify the trend. They found that private equity firms act as the primary buyers for these companies once they are divested by sustainable funds.

Timeline

  1. The study data covers the period from October 2018 through July 2022.

  2. The findings were formally published on October 26, 2026.

Market Dynamics

This research provides new clarity on how institutional compliance with frameworks like the European Union Sustainable Finance Disclosure Regulation influences the migration of firms from public to private markets. It highlights a structural shift where ESG mandates potentially accelerate the transition of lower-rated companies into less transparent private equity environments.

Retail investors should note that divestment by large sustainable funds may signal a looming transition to private status, which limits future public trading opportunities. This trend suggests that portfolio volatility could increase if firms are forced to exit major exchanges due to changing ownership profiles.

The takeaway

Investors should scrutinize the ESG ratings of their holdings as a potential indicator of long-term liquidity and listing status. Identifying companies prone to divestment by sustainable funds may help in anticipating shifts toward private market ownership.

Further reading

For more context on how sustainable metrics influence asset management, explore our Investing section.

Source note: This article includes information reported by NordSip | Nordic Sustainable Investment Platform.

Live Poll

Should institutional investors prioritize ESG ratings even if it risks pushing companies into opaque private markets?