Customer demand jumps up list of reasons firms engage on ESG ratings, while investor pressure falls
Trend may reflect focus of ESG backlash on sustainable finance rather than procurement initiatives
Pressure from clients and buyers is becoming a major driver of company engagement with ESG ratings, according to new research, while investor pressure is falling.
Two thirds of firms asked by environmental consultancy ERM said customer demand was one of the reasons they engaged with and used ESG ratings, with nearly a quarter citing it as the main motivation – up from just 7% in 2023.
Investor demand remains the most common primary driver among the 400 corporate representatives polled, but has dropped nine percentage points to 46% since 2023.
ERM partner Catherine Osborn told Real Economy Progress that, while financial institutions and initiatives have been a central target for those clamping down on sustainability in the US and elsewhere, procurement programmes have remained largely untouched.
She added that firms reported feeling “increasing pressure from customers to improve their sustainability performance, suggesting that customers’ sustainable procurement programs are continuing at pace, if not growing”.
There was evidence of this pressure last month when European pharmaceutical firms sent a letter to vendors, laying down a stricter set of “minimum sustainability targets” and expectations.
This week’s report also looks at which ESG ratings providers companies favour, revealing a general preference for those that actively engage with them instead of relying on passive data collection from public disclosures.
S&P Global and CDP were ranked highest for quality in the poll, with EcoVardis jumping six places to take top spot for “usefulness”.
Last week, the UK’s Financial Conduct Authority launched a consultation on regulating ESG ratings, in which it discusses the potential need for firms to have more access to providers so they can correct mistakes and provide primary data.
While 84% of companies said they intend to continue their engagement with ESG ratings providers in the future, nearly half believe the relevance of ratings will decrease over time.
Many are cutting back on the number of providers they deal with: those engaging with more than 10 providers dropped by more than a half, to 8%, while those working with two to five rating agencies jumped 28%.