Report: Sustainability Ratings Cost Firms Around $500K

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by KnowESG
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New research reveals that businesses are shelling out as much as $500,000 annually to obtain a sustainability rating to fulfill investors' requests for such information. However, the study also suggests that these companies are frequently dissatisfied with the outcome of these ratings.

According to a survey conducted by sustainability consulting firm ERM, publicly traded businesses typically incur ratings-related expenses ranging from $220,000 to $480,000 per year, while their private counterparts are charged up to $425,000.

The report also identified frequent criticisms concerning the reliability and openness of the data and ratings, as well as the ability of firms to rectify any inaccuracies.

The unregulated ESG industry has expanded quickly, propelled by the rising need for environmental, social, and governance (ESG) data and the dependence of many smaller investors on external providers to evaluate firms, which has drawn the notice of regulators.

The report from ERM indicated that businesses' discontent with the dependability of ratings was mainly attributable to their encounters with inaccuracies in raters' assessments of data supplied by the company, eroding their trust in the overall rating.

Out of the 104 companies polled, almost one-third claimed they had "low" or "very low" faith in the precision of ESG ratings in portraying their ESG performance.

Nonetheless, investor demands continue to drive them to acquire these ratings, with 95% of businesses indicating that this was a factor in their decision to engage with ESG raters.

According to ERM, investors are also spending substantial amounts on ESG data and ratings, ranging from $175,000 to $360,000. However, many investors reported only having "moderate confidence" in the dependability and usefulness of these ratings.

To view and compare company ESG Ratings and Sustainability Reports across sectors, follow our Company ESG Profiles page.

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Source: Business Recorder


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