The market for non-financial rating agencies - France

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$* billion threshold for the first time in ****. Buoyed by an impressive annual growth rate of **% over the past five years, the market could exceed US$*.* billion by ****. [***]

Global sustainable investment has seen considerable momentum in recent years, with estimates taking the total value of assets following sustainable investment strategies to €** trillion in ****, double the value in ****. This includes over *.* trillion euros of institutional assets based on ESG ratings and scores. [***]

ESG research and analysis, which includes ESG ratings, raw data and other dedicated solutions, account for around **% of the market. However, ESG indices, the other mainstay of the market, have grown even faster. This is due to the widespread success of ETFs (***) and the global increase in the number of indices. With an annual growth rate of **% over the past five years, the ESG index segment will exceed US$*** million in ****.

Frequency of use of ESG assessments by investors

The need to integrate ESG standards is being felt around the world, ...

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 growing. Extra-financial rating agencies play an essential role in this field, providing independent assessments and ratings of companies' ESG practices. Their expertise enables investors to make informed decisions and measure the sustainable impact of the companies in which they choose to invest. In this way, the growth of the ESG finance market is stimulating demand for extra-financial rating agencies, which play a key role in promoting transparency and accountability in the world of sustainable investment.

The domestic ESG finance market is highly dynamic, particularly in recent years. It is the leading market in Europe, with **% of European ESG funds managed in France, whereas France's share of total assets under management is only **%. In addition, over **% of French investment funds have set sustainability objectives. [***]

assessment of the role of sustainable finance in France France, ****, %, %, %, %, %, %, %, %, %, %, %, % Source: ****

The Orpea scandal

The Orpea scandal has shaken the market for extra-financial rating agencies by highlighting ...

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 wish to invest. Companies themselves are also important clients, seeking to assess their own ESG performance and communicate their sustainable efforts. Other clients include governments and public bodies, NGOs and financial advisors and consultants.

Institutional investors: Institutional investors such as pension funds, insurance companies, asset management companies and banks rely on extra-financial rating agencies to assess the ESG performance of companies in which they wish to invest. These investors use the ratings and reports provided by the agencies to make informed investment decisions aligned with their ESG criteria. Companies: Companies themselves can be clients of non-financial rating agencies. They can call on these agencies to assess their own ESG performance and obtain advice on improvements to be made. ESG ratings can also be used by companies to communicate their sustainability efforts and attract ESG-sensitive investors. Governments and public bodies: Governments and public bodies can also be clients of extra-financial rating ...

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 investments according to ESG criteria, at least from time to time. Moreover, **% consider that the way in which investments affect the environment is significant and should be taken into account.

Do you take these issues into account in your savings and investment choices? France, ****, % Source: ****

These issues are changing the way the French view the role of their financial institutions, towards which they are now more demanding when it comes to climate issues. In fact, **% of French people feel that it is important for financial institutions to ensure that the activities they finance or insure are in line with ESG and sustainability criteria.

Do you think that financial institutions should take ESG issues into account... ? France, ****, % Source: ****

On the other hand, **% felt that financial institutions were not taking ESG issues sufficiently into account.

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 stakeholders, including customers, employees and investors.

The following graph shows that CSR is considered a priority area of work by **% of respondents, while **% think it is an important area of work, but not a priority. Thus, **% of responses reflect the fact that CSR issues are very important for French companies.

Importance of CSR for companies France, ****, in Source: ****

Indicators measured by companies

Companies are already calculating their own indices to visualize their ESG commitment.

For the environmental criterion of ESG criteria, the carbon footprint is an essential part of CSR practices. The following graph shows that **% of companies have completed or will complete their **** carbon footprint. In fact, this practice is becoming an essential part of environmental initiatives, and provides a good indicator. This large proportion of companies having carried out a carbon footprint is not surprising, given that all companies with over *** employees are required to provide ADEME with ...

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. At **%, respondents replied that there was a growing demand from key stakeholders, including customers, to use the information provided by ES G assessments to fine-tune investment strategies. Finally, **% of those surveyed felt that ESG ratings are a credible, high-quality source of information on a company's ESG performance.

The most common uses of ESG assessments by investors World, ****, in % of responses Source: ****

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 used to demonstrate a company's CSR value in order to demonstrate its eligibility for SRI funds. Finally, it can also legitimize the importance of CSR internally and demonstrate the importance of these values to employees.

Important criteria for companies

The Rate the Raters report also includes the views of companies, the second most important client of extrafinancial rating agencies. The following chart shows the factors most important to companies in determining the quality and usefulness of rating agencies. The first factor is the credibility of the sources : **% of respondents gave a score of * or * out of * to judge the importance of this criterion. The quality of the methodology was also cited by **% of respondents as a criterion of high importance. Disclosure of methodology is an increasingly important criterion to counter criticism of agencies' lack of transparency, particularly in the wake of the Orpea scandal: **% consider this to be a criterion ...

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 and participation in carbon footprint reduction initiatives, such as the use of renewable energies or the implementation of cleaner technologies.

Social (***): The social criterion focuses on a company's social practices and their impact on stakeholders, including employees, local communities, customers and suppliers. It can encompass issues such as working conditions, diversity and inclusion, human rights, health and safety, and relations with local communities. To assess the social criterion, we can look at the company's human resources policies, staff turnover rates, employee satisfaction surveys, responsible sourcing practices, social responsibility initiatives and supply chain transparency reports.

Governance (***): The governance criterion evaluates a company's governance structure and the way it is managed and controlled. It includes aspects such as board composition, executive compensation, financial transparency, internal control mechanisms, anti-corruption policies and conflicts of interest. To assess this criterion, we can examine the company's annual reports, governance policies, independent audits, separation of powers between ...

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 not standardized, investors and companies must pay close attention to the methodology used by the rating agency. Nevertheless, the agencies have similar approaches and generally refer to recognized international standards as a common basis for analysis. This includes references such as the Universal Declaration of Human Rights, the conventions of the International Labour Organization (***), and the recommendations of the UN, OECD and EU.

Extra-financial rating agencies gather information from a variety of sources to assess a company's ESG performance. This may include consulting public and mandatory documents such as annual reports and balance sheets. They also draw up questionnaires distributed to company employees, as well as to service providers, customers and suppliers, in order to gather relevant information. In addition, they organize meetings with employees and management to assess the preventive measures put in place in terms of environmental crises, social responsibility and governance, as well as the level of ...

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 companies. Investor ratings In terms of quality, EcoVadis comes out on top, with an average rating of *.* out of *. This French extra-financial rating agency was founded in Paris in ****. Ecovadis has rapidly established itself as one of the world's leading non-financial rating agencies. The majority of other agencies are American: Bloomberg, ISS-ESG, Moody's ESG or MSCI. The rankings also include several British companies, such as CDP, while RepRisk is Swiss and Sustainalytics Dutch. In terms of usefulness, CDP takes first place with a score of *.* out of *, while Ecovadis falls to *th place, with an average score of *.* out of *. Ranking of non-financial rating agencies in terms of quality World, ****, rating out of * Source : Rate the Raters Ranking of non-financial rating agencies in terms of usefulness World, ****, rating out of * Source: ****

Ranking by companiesThe following rankings show the leading non-financial rating agencies according to companies. There are a few differences ...

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 just one of the three ESG criteria. This is the case, for example, of the Proxinvest agency, which focuses primarily on the ESG criterion relating to corporate governance: Proxinvest's emphasis on the ESG criterion of corporate governance means that it concentrates on issues such as transparency of information, executive remuneration, board composition and the protection of shareholders' rights. By assessing these criteria, Proxinvest seeks to promote more responsible and sustainable governance practices within companies, which can contribute to better long-term performance and more effective risk management.

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 specializing in the evaluation of companies' ESG (***) performance. Founded in ****, the company is headquartered in Paris, France, and is recognized as a world leader in ESG analysis.

In addition to its rating activities, Vigeo Eiris works with partners such as Euronext, the pan-European stock exchange operator, to develop responsible stock market indices. One such index is the Euronext-Vigeo, which measures the ESG performance of European companies. This index enables investors to track the performance of the best-performing companies in terms of sustainability and social responsibility.

Vigeo Eiris is also behind the CAC Gouvernance, a French stock market index that specifically assesses the quality of corporate governance in companies listed on the Paris Stock Exchange. This index enables investors to take corporate governance aspects into account in their investment decisions.

Sustainalytics

Sustainalytics is a global company specialized in assessing the sustainability and ESG performance of companies. Founded in ****, the company is ...

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 a desire to broaden their range of services to meet investors' growing expectations in terms of socially responsible investments. These takeovers enable the rating giants to acquire the expertise and resources they need to more effectively assess corporate performance in terms of sustainability, governance and social responsibility.this has strengthened their market position and contributed to a better integration of ESG criteria in investment decisions. This convergence between traditional financial rating and extrafinancial rating reflects a growing awareness of the importance of ESG considerations in company valuation and long-term financial risk management.

This trend has been marked by a series of acquisitions, leading to industry consolidation:

In ****, Standard & Poor's acquired Trucost, the UK-based company specializing in corporate environmental and social impact assessment. In ****, S&P Global also acquired RobecoSam, a Swiss company renowned for its expertise in sustainable investment. Moody's, another major industry player, acquired Vigeo Eiris in ****. US-based ISS ...

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, based on scientifically-developed criteria.

Sustainable activities are classified according to the following six objectives:

Mitigation of climate change ; Adaptation to climate change; Sustainable use and protection of aquatic and marine resources; Transition to a circular economy; Pollution control; Protection and restoration of biodiversity and ecosystems.

The aim is to enable progress to be made on a number of these points, without prejudicing progress on the remaining points(***).

Tools for implementation

The mechanism enabling companies and other players in the common market to develop sustainable investment solutions is based on two decisions:

Regulation on EU climate bench marks, applicable since ****; European Green Bond Standards(***).

The CSRD Directive

In June ****, the European Union adopted the CSRD (***) and sales in excess of ** million euros.

This concerns some **,*** structures within the European Union, as well as *,*** to *,*** listed SMEs and foreign companies with sales of over €*** million in Europe. The information provided by companies ...

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 this proposal aims to strengthen the confidence and integrity of financial markets by ensuring adequate supervision of non-financial rating agencies. ESMA would be responsible for verifying that agencies meet high standards of transparency, quality and reliability in their ESG assessments.

The article also mentions certain concerns raised by market players, notably the complexity of the regulations to be put in place and the risk of creating barriers to entry for new rating agencies. Nevertheless, it stresses that the proposal is seen as an important step towards strengthening the credibility of ESG assessment and addressing the growing challenges linked to the sustainability of investments.

In conclusion, the article highlights the possibility of extra-financial rating agencies being supervised by ESMA, which would help to increase regulation and transparency in the field of ESG assessment, while sparking debate on the practical implications of this proposal. [***]

6.1 Segmentation

• Ecovadis
• Moody's
• S&P
• EthiFinance
• Sustainalytics