Concerns Grow Regarding Market Consolidation as Moody’s Exits ESG Ratings Segment

Stakeholders believe that the imminent exit by Moody’s from the environmental, social and governance (ESG) ratings segment may apply upward pressure on prices, speed up consolidation in the ratings segment and create a gap in the market. In a recent statement, the leading global provider of credit ratings, research and risk analysis confirmed that it would close its ESG solutions business and put an end to its scoring products. This comes after the company announced that it was party to a strategic partnership with MSCI last week.

Under the terms of this partnership, Moody’s shall start offering MSCI ratings and data to its clients. MSCI shall also be provided access to the Orbis database, allowing it to extend its coverage of private companies.

Moody’s acquired Vigeo Eiris a few years ago in a deal valued at about €50 million. Once the acquisition was complete, the company changed its name to Moody’s ESG Solutions.

Shareholders and investors have raised different concerns following this recent announcement. One industry observer stated that the increasing consolidation in this sector would create barriers to entry for new providers, arguing that most large asset managers already used more than one provider. Another large asset manager noted that consolidation in this space presented a challenge because of a decreasing number of established providers and overreliance of investors on ESG ratings for decision making.

A sustainability-focused asset manager also revealed his fears that the MSCI scores and data that would replace Moody’s wouldn’t offer the same level of insights. The manager explained that this was mainly because MSCI centered on financial materiality.

EDHEC-Risk Climate Impact Institute’s founding director, Frédéric Ducoulombier, also stated that this was a sad day for Moody’s, which had made huge contributions to values-based investing. Ducoulombier added that the bigger problem now was there weren’t many providers left who aren’t linked to value-added activities such as index provision. He then noted that competition authorities’ supervision in these matters wasn’t effective, adding that anticompetitive techniques were used a lot in this business.

Latest figures show that in 2023, MSCI’s ESG and climate revenues rose by more than 30% to reach $472 million, while Moody’s rose by under 10% to hit $207 million. Integrum ESG’s chief executive, Shai Hill, believes Moody’s restructuring may have been because of the similarity of its products offerings to other providers.

It is expected that the closure of Moody’s ESG ratings business will not affect its second-party opinion services or its climate-data products.

As this anticipated consolidation takes shape within the ESG rating landscape, individual companies such as First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) may have to rely on their in-house systems to track how well they are progressing toward the attainment of their ESG goals.

NOTE TO INVESTORS: The latest news and updates relating to First Tellurium Corp. (CSE: FTEL) (OTCQB: FSTTF) are available in the company’s newsroom at https://ibn.fm/FSTTF

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