Investors Bypass ESG Ratings for In-House Research

Institutional investors are abandoning off-the-shelf ESG ratings in favour of building internal capability. A new survey reveals that in-house research and direct company engagement now outrank third-party ESG ratings as the primary tools for assessing corporate sustainability performance.

This shift reflects a hard truth: commercial ESG ratings remain unreliable. Ratings methodologies vary wildly between providers, correlations between major rating agencies sit below 0.6, and scores frequently miss material risks specific to a company's sector or investment thesis. Investors can't outsource due diligence to a number.

Building internal teams costs money and time. But the alternative – relying on ratings that may diverge sharply from your own risk assessment – costs more. Engagement with companies directly allows investors to pressure management on specifics: Scope 3 emissions accounting, actual board renewal, supply chain audits. Generic ESG ratings can't do that.

This trend matters for companies. If your primary audience is now the investor relations team at a large pension fund or asset manager rather than the rating agency analyst, your reporting and engagement strategy needs to shift. You'll face tougher, more targeted questions. Cookie-cutter sustainability reports won't suffice.

It also matters for the ESG ratings industry itself. If institutional capital – which drives ESG fund flows – is quietly deprioritising ratings, business models built on rating subscriptions face pressure. The industry has spent years defending methodological opacity as competitive advantage. Investors are voting with their capital that opacity isn't valuable.

The remaining question: will asset managers share findings, or hoard them as competitive edge?

In-House Research, Engagement Overtake ESG Ratings as Investors’ Top Sustainability Tools: Survey

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