When your sustainability team can't tell you which rating agencies actually influence your investors, or why your MSCI score diverges sharply from your Sustainalytics score on the same underlying data, that's not a knowledge gap. It's the expected output of a market that has never agreed on what it's measuring.

The Market Has Failed to Converge

Globally, there are now more than 600 sustainability reporting standards, frameworks, industry initiatives, and guidelines in existence, according to KPMG's 2022 survey of 5,800 companies across 58 countries. More than 100 ESG data vendors operate globally, per IOSCO's 2021 count. The European Securities and Markets Authority found 59 active in the EU alone. Credit markets, by comparison, function on three dominant providers whose ratings correlate at approximately 99%. ESG rating agencies correlate at an average of 0.54 across the six largest providers, with the governance dimension as low as 0.30, according to Berg, Kölbel, and Rigobon's 2022 paper in the Review of Finance. A company in the top quartile of one major agency can sit simultaneously in the bottom quartile of another. Both claim to be measuring the same thing.

This disagreement has a measurable cost. Research published in the Journal of Financial Economics in 2022 by Avramov, Cheng, Lioui, and Tarelli showed that companies with greater cross-provider ESG rating disagreement face higher market risk premiums. Investors price the uncertainty itself. A company with strong sustainability performance pays more to borrow and attracts less equity capital because the agencies its investors rely on can't agree on how to represent that performance. Capital flows away from genuinely well-managed companies toward ones that happen to score well on whichever agency a given investor weights most heavily.

The disagreement compounds because more disclosure doesn't resolve it. Harvard Business School researchers Kotsantonis and Serafeim showed in 2019 that ESG rating provider disagreements actually increase as the volume of corporate disclosure grows. More information gives raters more raw material to interpret through incompatible lenses. Berg, Kölbel, and Rigobon quantified the source: 56% of divergence comes from measurement differences, where raters score the same metric differently, and 38% from scope differences, where raters choose to measure entirely different things. Only 6% comes from weighting, which is the one dimension additional data might actually affect. The divergence is structural, and it requires methodological agreement the market has not produced.

Regulation Is Making It More Complex Before It Makes It Less

There is a credible long-term case that regulation will eventually impose order. IOSCO in 2021 recommended that securities regulators bring ESG ratings providers into the regulatory perimeter. The IFRS Foundation's ISSB published its first two disclosure standards in 2023, and the UK, Australia, Singapore, and Canada are each moving toward mandatory alignment. Progress is real.

The near-term picture for any multinational is harder. The European CSRD framework, which came into force in January 2023, extends mandatory sustainability reporting to over 50,000 companies under twelve European Sustainability Reporting Standards, covering topics from biodiversity to workforce conditions. Those standards require double materiality: companies must report both how sustainability risks affect the business and how the business affects the world. ISSB uses single materiality, covering only investor-relevant risks and opportunities. These are fundamentally different answers to the question of what sustainability reporting is for, and a company with meaningful operations in Europe and the US now complies with both simultaneously.

PwC's 2023 Global Investor Survey of 345 investors across 30 countries found that 94% believe corporate sustainability reporting contains unsupported claims. That finding reflects the predictable result of asking companies to satisfy dozens of contradictory requirements at once, with rigour spread impossibly thin across all of them.

Adding Resource to the Wrong Problem

The most common response to this environment is to treat it as a capacity problem. Companies staff up, expand their framework coverage, respond to more rating agency questionnaires, and track performance against a longer list of benchmarks. The volume of effort increases. The clarity of strategic direction rarely does.

Berg, Kölbel, and Rigobon's NBER working paper on ESG confusion and stock returns offers a finding that reframes what good looks like: when ESG ratings are aggregated across providers, the consensus signal has significantly more predictive validity than any individual rating. Aggregating divergent raters filters noise rather than amplifying it. The implication is that no single agency's view deserves to be treated as the authoritative signal, and that concentrating improvement effort on the factors where the agencies relevant to your investor base consistently agree is more productive than trying to satisfy each of them on its own terms.

SustainAbility's Rate the Raters survey, which tracks how investors and companies experience ESG ratings over time, found that approximately half of both groups identify greater consistency and comparability across rating methodologies as the single most important improvement they want from the market. The market isn't delivering it on any near-term timeline. Waiting for it to arrive before making strategic prioritisation decisions is a way of letting the landscape's incoherence set your agenda.

What Disciplined Navigation Looks Like

The OECD's 2022 assessment of ESG ratings and climate transition found that the number of metrics per ESG rating product ranges from 111 to 573, averaging 255. Company coverage across rating products ranges from roughly 2,000 to 20,000 companies. No two providers rate the same universe, using the same metrics, or applying the same methodology. Asking "how do I improve my ESG scores" is a strategically incomplete question without first specifying whose scores, on which factors, weighted toward which investors.

The companies that navigate this well have built their own filter. It has two parts. The first is a genuine materiality baseline: the sustainability factors that are financially significant to their specific sector and business model, grounded in what investors and rating agencies, taken together, consistently identify as value-driving rather than assembled through internal stakeholder surveys. The second is a view of consensus: a systematic understanding of which factors the rating agencies their investors actually use evaluate consistently and reward. The intersection of those two is where improvement effort earns returns. Companies that validate this further by tracing the relationship between specific sustainability factors and their own stock performance have an even sharper filter. Work that falls outside it adds to reporting volume without adding to performance.

Deloitte's 2023 survey of 300 large US public company executives found that 35% name sustainability data quality as their single greatest challenge, ahead of both regulatory preparedness and strategy. The companies that handle this well don't produce more data. They produce defensible data on a focused set of material factors, and they can stand behind every number in it. In a landscape where 94% of investors assume sustainability reporting contains unsupported claims, that discipline is a competitive advantage.

The Question Worth Sitting With

Your sustainability function is operating in a market with over 100 rating providers, a 0.54 average inter-rater correlation, and two mandatory frameworks with incompatible definitions of what materiality means. The volume and complexity of the landscape will keep growing.

The real question is whether your function has an explicit filter for deciding what to prioritise, or whether the last questionnaire that arrived sets it. Most don't have one. And for those that do, it's worth pressure-testing whether it's grounded in what the market actually rewards in your sector, or in something less sturdy.

References

• Berg, F., Kölbel, J.F. & Rigobon, R. (2022). "Aggregate Confusion: The Divergence of ESG Ratings." Review of Finance, 26(6), 1315–1344.
• Berg, F., Kölbel, J.F. & Rigobon, R. (2022). "ESG Confusion and Stock Returns: Tackling the Problem of Noise." NBER Working Paper No. 30562.
• Kotsantonis, S. & Serafeim, G. (2019). "Four Things No One Will Tell You About ESG Data." Journal of Applied Corporate Finance, 31(2), 50–58.
• Gibson Brandon, R., Krueger, P. & Schmidt, P.S. (2021). "ESG Rating Disagreement and Stock Returns." Financial Analysts Journal, 77(4), 104–127.
• Avramov, D., Cheng, S., Lioui, A. & Tarelli, A. (2022). "Sustainable Investing with ESG Rating Uncertainty." Journal of Financial Economics, 145(2), 642–664.
• Chatterji, A.K., Durand, R., Levine, D.I. & Touboul, S. (2016). "Do Ratings of Firms Converge? Implications for Managers, Investors and Strategy Researchers." Strategic Management Journal, 37(8), 1597–1614.
• IOSCO (2021). "ESG Ratings and Data Products Providers." Final Report, November 2021.
• ESMA (2022). "Call for Evidence on Market Characteristics for ESG Rating Providers in the EU." February 2022.
• KPMG (2022). "Big Shifts, Small Steps: Global Survey of Sustainability Reporting 2022."
• SustainAbility by ERM (2023). "Rate the Raters 2023: ESG Ratings at a Crossroads."
• Deloitte (2023). "Sustainability Action Report: Survey Findings on ESG Disclosure and Preparedness."
• OECD (2022). "ESG Ratings and Climate Transition: An Assessment of the Alignment of E Pillar Scores and Metrics."
• European Commission (2023). Corporate Sustainability Reporting Directive (CSRD).
• PwC (2023). "Global Investor Survey 2023."