German asset managers question ESG data and rating services

German asset managers are increasingly questioning ESG providers’ services, as they consider costs for data and ratings disproportionally high compared to their quality.

Only 18% of the asset managers in Germany consider the costs of ESG data and ratings “appropriate”, while 81% do not consider the costs reasonable, according to the latest market study conducted by financial market regulator BaFin.

Costs are disproportionately high because the ESG data and ratings market is concentrated in a small number of providers that, with their “dominant market position”, charge high prices, according to the asset managers surveyed in the study.

The budget drafted by asset managers for ESG data and ratings costs has increased steadily from 2022 to 2024, it added, underlying that sustainability data and ratings are highly relevant, and their weight will continue to grow in the investment process.

However, according to the study, only 38% of the asset managers consider data quality “high”, because of partly poor data coverage, and because data are at times old.

Lack of quality, and data updates, sometimes poor data coverage, low comparability and transparency of data are among the biggest challenges for money managers, the study found.

“There are still major shortfalls in the available ESG data and ratings. I think more transparency is very important here, too,” said Thorsten Pötzsch, BaFin’s asset management executive director, in an interview.

He added: “Data and ratings providers should better explain how they arrive at their ratings, what data sources they use, what they do if they lack certain ESG data.”

BaFin’s study also found that 20% of the companies it researched had found implausible data, and 70% stated that adjustments had been made to the calculation methodology of ESG data and ratings from external providers.

Calling for clarity and detail

Based on the results of the study, BaFin is calling on ESG data and ratings providers to disclose their methods clearly and in detail. The regulator expected that some of the new rules proposed by the European Commission, with a provisional agreement reached by the Council and European Parliament, tackle some of the problems affecting ESG ratings, and addressed in the market study.

BaFin is also “working intensively” on guidelines for fund names, as it does ESMA, Pötzsch added in the interview.

The majority of asset managers in Germany (83%) uses external providers to collect data on ESG. As for ratings providers, 84% of managers use MSCI, 44% ISS, 28% Bloomberg and 20% Sustainalytics and Solactive. Over 70% of asset managers use more than one provider, the study added.

BaFin’s research also found that 17% of asset managers use only in-house collected data, mostly those exclusively managing alternative investment funds such as real estate funds.

BaFin has surveyed 30 asset managers and six ESG ratings providers for the study.

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