ESG Ratings in 2026: Why ESG Ratings Still Matter

Once seen as the defining acronym for sustainable finance and business, ESG has increasingly become politicised, misunderstood, and in some markets, openly criticised. Some companies are stepping back from the label, investors are reassessing approaches, and headlines often suggest that ESG is in retreat.

So, does this mean ESG is over? Not quite.

While the term itself may be losing favour, the underlying need for sustainability-related risk management has never been stronger. In fact, in a “post-ESG” world, ESG ratings are becoming more important than ever.

The Backlash is Not About Sustainability 

The recent pushback has often been framed as a rejection of sustainability or responsible business. In reality, much of the criticism centres on it being:

• Broad and inconsistently defined

• Overly politicised in certain markets

• Blurred between financial materiality and moral judgement

• Treated as a marketing label rather than a discipline

• Applied in ways that feel disconnected from business fundamentals

In short, the issue has not been that ESG factors don’t matter but that the ESG ecosystem has sometimes lacked clarity, comparability, and trust. This is precisely where ESG ratings play a critical role.

ESG Ratings Remain Embedded in Capital Markets

Even as some companies reduce their public use of the ESG label, capital markets have not moved on. ESG ratings continue to influence:

• Investor portfolio decisions

• Passive index inclusion

• Cost of capital

• Credit assessments

• Reputational risk exposure

• Opportunities

Investors utilise ESG rating providers for many reasons, predominantly to import the underlying data collected by these providers to inform internal investment models and to filter funds and portfolios. For many institutional investors, ESG ratings are part of the core risk management infrastructure. ESG rating providers translate complex sustainability disclosures into benchmarks that capital markets can act on.

Terminology may shift, but the data-driven scrutiny remains.

Sustainability Reporting Regulations Fall Short of ESG Rating Expectations

For the most part, ESG ratings go beyond the “minimum” data requirements of the world’s key sustainability reporting regulation and frameworks, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and ISSB. As such, companies that only report what is required by those frameworks will not fully satisfy the growing number of data points that some investors demand to evaluate companies, and therefore, their ESG ratings and investor assessments will be impacted as a result.

Companies looking to lead their industry and capitalise on sustainable funds should consider publishing an additional ESG data book, outside of what’s mandated in their annual reports. These additional ESG data resources can outline a more comprehensive set of ESG-related metrics, beyond those required by regulation and framework guidelines, to help ESG ratings providers and investors paint a clearer picture of companies' ESG risks.

The Future of ESG Ratings: More Transparency, More Materiality

Due to regulatory pressures like the EU's ESG Ratings Regulation, applying from July 2, 2026 [1], the landscape of ESG ratings is continuing to evolve. As a result, we are seeing improvements across the industry, including:

• Clearer definitions of scoring criteria

• Greater methodological transparency

• Potential for better issuer-level materiality assessment

• Increased regulatory oversight of rating agencies

Rather than signalling the end of ESG, these changes represent a maturing of the market. The focus is shifting away from broad “one-size-fits-all” scores, and toward more targeted sustainability intelligence: sector-specific risks, transition readiness, governance resilience, and controversy management.

As the ESG label becomes more contested, the underlying pressures driving sustainability risk have only intensified. Investors, regulators, lenders and supply chains still need credible, comparable ways to assess how companies are positioned against climate transition, governance resilience, workforce expectations and emerging compliance requirements. In a landscape where disclosure is expanding, and there is increased greenwashing scrutiny, ESG ratings provide a structured approach that markets rely on, translating complex sustainability data into decision-useful signals on risk, preparedness and long-term performance.

Leaders Arena has an experienced ESG Ratings team dedicated to supporting companies in identifying key reporting gaps, maximising ESG scores, and responding to ESG-related controversies. In addition, we help companies improve their sustainability reporting and CSRD implementation.

Get in touch to find out more about how we can support you with ESG ratings & sustainability reporting: support@leadersarena.global    

Notes

[1] https://www.esma.europa.eu/esmas-activities/investors-and-issuers/esg-rating-providers