The End of ESG Ratings: What’s Next for Sustainable Investing?

ESG ratings were supposed to revolutionize investing, directing capital toward sustainable companies. Instead, they’ve become a compliance exercise—rewarding paperwork over real impact. If ESG scores are broken, how should investors integrate sustainability into their decisions?

The ESG Ratings Collapse: Why Investors Are Moving On

For years, ESG scores were the dominant tool for sustainable investing. Now, some of the biggest names in finance are backing away:

• BlackRock, State Street, and Vanguard are deprioritizing ESG scores in favor of proprietary frameworks​.

• The EU’s Sustainable Finance Disclosure Regulation (SFDR) exposed that many ESG-labeled funds weren’t actually reducing emissions​.

• A 2023 PwC survey found that 49% of institutional investors don’t trust ESG ratings and are developing internal models​.

Clearly, something is broken. But why?

3 Flaws of ESG Ratings

1. Inconsistency & Arbitrary Scoring

ESG ratings don’t measure sustainability—they measure disclosure. This leads to absurd contradictions:

• In 2022, Tesla was kicked off the S&P 500 ESG Index, while ExxonMobil remained​.

• Tesla had governance concerns, while ExxonMobil received points for disclosing emissions—even as an oil giant.

• A Harvard Business Review study found that ESG scores from different providers correlate at only 0.61—compared to 0.99 for credit ratings​.

In other words: ESG scores depend more on which provider you ask than on the company’s actual sustainability.