When Ivo Knoepfel coined the term “ESG investing” in his landmark 2004 UN report, “Who Cares Wins,” he unleashed an almost inconceivable rise of sustainable investing. With this rapid growth in ESG has come the insatiable demand for ESG data. According to SustainAbility, an ESG consultancy, the number of ESG ratings and rankings providers has grown from about 20 in 2000 to over 600 by 2020. Even with recent market consolidation, this number has grown since then.
The early pioneers of ESG investing were almost exclusively equity investors. For example, net AUM in sustainable equity funds was over 2.5x higher than net AUM in sustainable fixed income funds back in 2000, a number that hasn’t budged much since then (Exhibit 2). As a result, the ESG data industry grew up mainly catering to their needs.
One legacy of this origin story is that most data vendors assess companies at the holding company, rather than operating company, level. This makes sense for equity investors, as equity shares are only listed for the parent company. If a company is acquired, its shares are replaced by cash or are converted to the acquiring company’s shares.
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