The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Wed, 09 Sep 2026 13:48:08 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.10 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png The Market for ESG Ratings – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 The Market for ESG Ratings https://corpgov.law.harvard.edu/2026/09/09/the-market-for-esg-ratings/?utm_source=rss&utm_medium=rss&utm_campaign=the-market-for-esg-ratings https://corpgov.law.harvard.edu/2026/09/09/the-market-for-esg-ratings/#respond Wed, 09 Sep 2026 11:31:40 +0000 https://corpgov.law.harvard.edu/?p=183773?d=20260908152740EDT Posted by Ehsan Azarmsa (University of Illinois Chicago) and Joel Shapiro (University of Oxford), on Wednesday, September 9, 2026
Editor's Note:

Ehsan Azarmsa is an Assistant Professor at the University of Illinois Chicago (UIC) College of Business Administration and Joel Shapiro is a Professor at the University of Oxford Saïd Business School. This post is based on their recent article, forthcoming in the Journal of Finance.

ESG ratings have become an important input into investment decisions. With the advances of sustainable investment, a large industry has developed to collect, analyze, and sell information about firms’ environmental, social, and governance performance. At the same time, ESG ratings have attracted considerable criticism. Ratings from different providers often disagree, raising concerns among investors, regulators, and academics about their accuracy and usefulness.

One common response is to compare ESG ratings with credit ratings, but credit ratings ultimately assess one dimension: credit risk. ESG ratings cover a wide range of potentially unrelated categories. Environmental performance can include climate change, biodiversity loss, and pollution; social performance can include human capital, product liability, and stakeholder relations; and each of these categories contains further subcategories. An ESG rating provider therefore faces a basic choice about where to devote its resources. It can specialize in a narrower set of categories, or it can generalize and spread its effort across many of them.

In our paper, The Market for ESG Ratings (Journal of Finance, 2026) we study how competition among ESG rating providers affects this choice. Our main finding is that competition can lead rating providers to become generalists even when specialization would produce more information. This distortion is most likely to arise when investors care very strongly about ESG performance.

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