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Summary
The global market for extra-financial ratings, focusing on ESG (Environment, Social, Governance) criteria, has grown significantly, with the market exceeding the US$1 billion threshold for the first time in 2021, and set to exceed US$1.3 billion by 2022, according to Opimas. This growth is in line with the momentum of global sustainable investment, which has doubled in 4 years to reach 45,000 billion euros in 2020. ESG assessments are now an integral part of investor activity, with 43% of investors declaring in 2022 that they need to integrate ESG criteria into their investment strategies, a significant increase from 12%.
Despite this increase in investors' use of and confidence in ESG ratings, confidence is lukewarm, with an average rating of 3.31 out of 5 on the accuracy of these ratings in reflecting company performance, probably due to concerns about variations in ratings between different agencies and the risks of greenwashing. Europe, and France in particular, is at the forefront of this market, with 36% of European ESG funds managed from France.
French trends also show that companies are paying increasing attention to CSR, with ESG factors being a priority or important area of work for 82% of them. French investors reflect this sentiment, with 53% taking ESG criteria into account in their financial decisions, although 46% believe that financial institutions do not take ESG issues sufficiently into account.
The diverse client base of extra-financial rating agencies includes institutional investors, corporations, government bodies, NGOs and financial advisors, all seeking to align themselves with growing ESG expectations.
Growing interest in sustainable investment: The ESG imperative in the French market.
In France, growing interest in sustainable and responsible investment strategies has significantly influenced the extra-financial ratings market, particularly in the area of environmental, social and governance (ESG) criteria. Extra-financial rating agencies are increasingly sought after by companies seeking to demonstrate their commitment to sustainable policies, in order to attract investors who favor responsible investment.
The trends observed in the French market underline the close relationship between these agencies and the burgeoning ESG finance sector. Institutions, companies and individuals are increasingly taking ESG factors into account in their financial choices. French investors, who account for between 50% and 70%, are showing an inclination towards sustainable development when deciding where to invest their capital, according to data that is driving demand for greater transparency and scrutiny of environmental, sustainability and governance issues.
What's more, the impetus for alignment with ESG criteria is not only coming from investor demand. The majority of French companies, around 80%, recognize the importance of CSR, and over 70% have carried out or plan to carry out a carbon footprint analysis by 2022, reflecting their growing environmental awareness.
Gender equality within these companies, measured via the equality index, is also a notable trend, with around 60% of companies reporting on this measure, illustrating a commitment to "S" in ESG.
The growth of the French market is reflected in the increase in the value and number of SRI and Greenfin-labelled funds. By 2021, these figures will have risen sharply, reflecting investors' growing interest in sustainable and responsible investment opportunities. It's worth noting that European ESG funds managed by French companies account for over a third of the industry as a whole, far exceeding France's proportion of overall assets under management.
However, the ESG market is not without its critics, as incidents such as the Orpea scandal have highlighted potential shortcomings and raised concerns about the reliability and methodology of ESG assessments. Such events underline the need for more rigorous standards and a unified framework, potentially such as the EU's Green Taxonomy, to ensure the consistency and reliability of ESG reporting and assessments.
As the market continues to evolve, it is clear that the demand for detailed and credible ESG information is on the rise, with investors and companies in France advocating the transparency and effectiveness of extra-financial rating agencies.
With a substantial annual growth rate of over 25% in recent years, and a valuation that could exceed 1.3 billion euros, the ESG data market in France, and in particular the extra-financial rating agencies, is shaping the ESG landscape.
As the movement towards sustainable development and responsible investment gains momentum, several extra-financial rating agencies have established themselves as key players in the European ESG market. These entities not only encourage a culture of transparency and responsibility, they also influence investment decisions that align with environmental, social and governance (ESG) values.
Here are the main agencies that have carved out a special place for themselves in the field of ESG ratings in Europe.
- Vigeo Eiris (VE) is a renowned agency specializing in ESG assessments. Based in Paris and with a presence in the UK, it offers a comprehensive view of the ESG performance of companies worldwide. In collaboration with Euronext, the agency contributed to the development of the Euronext-Vigeo Index - a measure that enables investors to monitor the sustainability credentials of European companies. The agency's focus on governance is also illustrated by the CAC Gouvernance index, which measures the quality of governance in French listed companies.
- Sustainalytics originated in the Netherlands, and has grown to become a cornerstone in the sphere of non-financial evaluation. Recognized for its robust ESG data, research and ratings, the agency serves investors by providing in-depth information to guide responsible investment strategies. Its ratings are an essential resource for entities seeking to integrate ESG considerations into their portfolios.
- EthiFinance, born in France, appeared on the scene in 2004. The agency is dedicated to providing accurate ESG assessments for investors, companies and public institutions. Its local roots and global reach have made it an influential entity in the sustainable investment landscape in Europe and beyond.
- UK-based Trucost has been a pioneer in the quantification and monetization of environmental impacts since its inception in 2000. It provides companies and investors with the tools they need to assess their ecological footprint, thereby promoting the transition to a low-carbon, resource-efficient economy.
- Proud of its English origins, Standard Ethics, founded in 2001, has distinguished itself by focusing on sustainability criteria. The agency's unique approach of aligning its ratings with international sustainability guidelines has earned it recognition from a diverse client base keen to maintain sustainable business practices.
- Founded in France, EcoVadis has been building a reputation since 2007.
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- Number of pages : 30 pages
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- Last update : 19/05/2023
Summary and extracts
1 Market overview
1.1 Market definition and scope
Non-financial ratings are used to assign scores to companies based on criteria other than economic and financial performance. These ratings are used by investors wishing to place their money in responsible companies. Extra-financial, or ESG (Environmental, Social, Governance) criteria are not standardized, however, as they are much more difficult to measure than accounting criteria.
Today, the demand for extra-financial ratings is exploding: companies want to show potential investors that they are pursuing sustainable, durable and responsible policies. The three pillars of ESG are as follows:
- Environmental : respect for biodiversity, waste management, reduction of greenhouse gas emissions, risk prevention, etc.
- Social : respect for employees' rights, framework for social dialogue, protection of workers, gender equality
- Governance: combating corruption, transparency of executive compensation, relations between shareholders, management and the board of directors.
There are two types of rating: declarative and solicited. Solicited ratings, unlike declarative ratings, are carried out at the company's request. Today, there is growing criticism of the risk of greenwashing that arises from solicited ratings, since it is the companies themselves that provide the data to the rating agencies. What's more, not all agencies take the same criteria into account. As a result, two agencies can give very different ratings to the same company.
On a global level, Europe has taken the lead in this market, although major American financial rating agencies have begun to buy up European players. the global market for ESG data will exceed the US$1 billion threshold for the first time in 2021. Buoyed by an impressive annual growth rate of 28% over the past five years, the market could exceed US$1.3 billion by 2022. [Opimas] While demand for extra-financial ratings will undoubtedly continue to grow over the coming years, the market is also coming under increasing criticism. To avoid losing the confidence of investors, it will be necessary to make the criteria used transparent and to harmonize standards at European level.
1.2 Global market trends
Size of the ESG data market
**** has been a pivotal year for ESG data providers. Based on publicly available information, interviews conducted and actual or estimated company revenues, Opimas finds that the global ESG data market exceeded the US$* billion threshold for the first time in ****. Buoyed by an impressive ...
1.3 French market trends
ESG finance
The link between ESG (***) finance and extra-financial rating agencies is becoming ever closer as the market for sustainable and responsible investment continues to grow. As more and more investors integrate ESG criteria into their investment decisions, demand for reliable, objective information on companies' environmental, social and governance performance is ...
2 Demand analysis
2.1 Different types of customers
Non-financial rating agencies are called upon by a variety of clients from different sectors. The main clients are institutional investors and companies. Institutional investors, such as pension funds and asset management companies, are the main clients and use the agencies' services to assess the ESG performance of companies in which they ...
2.2 A majority of French people are interested in sustainable development in their financial choices
**% of French people are aware of sustainable development issues and pay attention to them.
How important are sustainable development issues to you? France, ****, %, %, %, %, %, %, %, %, %, %, %, % Source: ****
To a lesser extent, the French are convinced that savings and finance have a role to play in these issues, with **% of them orienting their savings and ...
2.3 French companies and CSR
French companies are increasingly sensitive to aspects of Corporate Social Responsibility (***) and are paying growing attention to this dimension, especially following the growing implementation of government regulations. Companies are increasingly recognizing the importance of CSR as a lever for improving their overall performance, enhancing their reputation and meeting the expectations of ...
2.4 Investors' views on quality and usefulness
Rate the Raters provides a report on the use of ESG ratings by investors, as well as the evaluation of the various extrafinancial rating agencies.
Use by investors
Among the uses of ESG ratings, the most common use (***) by raters is to complement research already carried out by their own company. ...
2.5 Companies' views on quality and usefulness
Companies can use extra-financial ratings for a number of reasons. It can enable a company to situate itself in CSR terms in relation to its sector, and identify potential areas for improvement. ESG ratings can also be used to demonstrate CSR value to current and future investors. It can also be ...
3 Market structure
3.1 ESG criteria
ESG criteria
Environment (***): Environmental criteria assess how a company manages its impact on the environment. This may include waste management practices, use of natural resources, greenhouse gas emissions, air and water pollution, and biodiversity. To assess these aspects, we can examine the company's sustainability reports, environmental policies, adherence to environmental standards ...
3.2 Assessment of ESG criteria
ESG criteria evaluation methodology
Each rating agency develops its own criteria and indicators for assessing the ESG performance of companies, which is one of their main limitations. This is one of their main limitations. Because there is no common frame of reference for all the agencies, and the evaluation criteria are ...
3.3 Ranking agencies in terms of quality and usefulness
The following rankings list the leading non-financial rating agencies according to * criteria: quality and usefulness. However, the quality and usefulness criteria of the rankings may vary according to the perspectives of the two main types of client: investors and companies. We therefore distinguish two sub-sections: rankings by investors, and rankings by ...
4 Offer analysis
4.1 ESG offers and services
We can distinguish six main categories of ESG offerings and services, identified in the Deloitte report on ESG data providers:
The major non-financial rating agencies offer all these services under a single ESG analysis, while smaller agencies may specialize in a specific category. Some agencies may also decide to focus on ...
4.2 Europe's leading non-financial rating agencies
As we saw in Part *, some of the world's leading non-financial rating agencies are European companies, mainly of French or English nationality. The table below shows the founding dates and nationalities of the leading European agencies in this market:
Vigeo Eiris
Vigeo Eiris is an international non-financial rating and research agency ...
4.3 The takeover of non-financial rating agencies by financial rating giants
Faced with the growing importance of extra-financial criteria such as ESG, the traditional players in financial rating have recognized the need to integrate these dimensions into their assessments. The acquisitions of companies specializing in ESG analysis by the major rating agencies, such as Standard & Poor's, Moody's, ISS and Glass Lewis, reflect ...
5 Regulations
5.1 European and French regulations defining the transparency framework for ESG information
European and French legislation has gone to great lengths to establish a transparency framework, notably to identify activities relating to fossil fuels. The European Regulation (***).
the European SFDR has been extended by Article ** of the French Energy-Climate Law.
5.2 A European framework under development
In addition to the publication of non-financial information, the European regulatory framework is based on two pillars:
The European Taxonomy
Adopted on June **, ****, the regulation is soon to be revised to include gas and nuclear, as transition technologies. This is a common classification of economic activities aimed at achieving environmental objectives, ...
5.3 ESMA's forthcoming supervision of non-financial rating agencies
An article published by Les Echos discusses the possibility of supervising non-financial rating agencies in Europe. According to the article, the European Securities and Markets Authority (***) could be given the power to regulate and supervise these agencies, which play a key role in assessing companies' ESG criteria.
The article stresses that ...
6 Positioning the players
6.1 Segmentation
- Ecovadis
- Moody's
- S&P
- EthiFinance
- Sustainalytics
List of charts
- Frequency of use of ESG assessments by investors
- Investor confidence in ESG assessment
- Assessing the role of sustainable finance in France
- Number of funds and value of SRI Label assets under management
- Number of funds and value of Greenfin Label assets under management
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Latest news
Financial rating agencies: S&P, Moody's and Fitch - 31/05/2023
- S & P, Moody's and Fitch dominate the market for corporate and government ratings
EcoVadis raises $500 million to become 27th French unicorn - 14/06/2022
- EcoVadis has raised $500 million, two years after a $200 million round in 2020, and is France's 27th unicorn
- The unicorn has 1,350 employees
- In 2007, the young company raised 1 million euros, then 30 million in 2018 and finally 200 million in 2020
- EcoVadis claims 95,000 corporate customers worldwide and 1,800 new customers a month
- EcoVadis plans to recruit 460 employees
- Its most important market is Europe, although the company is increasingly expanding into North America
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