ESG Data is Now Worth It

EXECUTIVE SUMMARY

Consideration of Environmental, Social and Governance (ESG) factors in the investment process has gone mainstream. In fact, 2021 was a landmark year for ESG data vendors. Based on publicly available information, interviews, as well as companies’ actual or estimated revenues, Opimas finds that the global market for ESG data surpassed US$1 billion for the first time in 2021. Supported by an impressive 28% annual growth rate over the past five years, the market could exceed US$1.3 billion by 2022 (Figure 1).

ESG research and analytics, which includes ESG ratings, raw data and other dedicated solutions, represents around 70% of the market. However, ESG indices, which make up the other leg of the market, have grown even faster. This is due to the broad success of ETFs and the global increase in the number of indices. With a 38% annual growth rate over the past five years, the ESG indices segment surpassed US$300 million in 2021.

Figure 1: The Market for ESG Data Surpassed US$1 bn in 2021

 

The top three ESG data providers, namely MSCI, ISS ESG and Sustainalytics, account for about 60% of the market. This is partly the result of the impressive number of ESG-related mergers and acquisitions that took place over the past decade. Despite its concentration, the ESG data market remains relatively crowded, with many boutique firms and upstarts.

The market’s growth stems, in part, from increasing demand for funds that incorporate ESG risks into their investment strategies, but also from the emergence of new regulatory requirements around ESG reporting and disclosure. Europe has led the pack with ambitious regulations resulting from the EU Action Plan on Sustainable Finance. However, other regions are following suit, including a long-awaited proposal from the US Securities and Exchange Committee (SEC) on climate disclosure by public companies. In addition to government regulations, several international initiatives such as the Task Force on Climate-related Financial Disclosure (TCFD) have helped drive climate disclosure.

In order to meet new requirements and standards, ESG data vendors have enlarged their product offerings. This is particularly true regarding climate-risk solutions and EU reporting tools and services. Beyond traditional ESG data products like ESG ratings, most ESG data vendors now offer a gamut of sophisticated products focusing on carbon footprint calculations, climate scenario analysis and the financial impact of climate change.

In just one decade, ESG data has evolved significantly, and its use cases have expanded from basic performance assessments to encompass risk management and regulatory reporting.

Opimas expects regulatory requirements around climate stress testing and ESG disclosures to become more stringent, and the market for ESG data to continue growing at a healthy pace.

© OPIMAS, 2022. All Rights Reserved.