A sweeping new EU regulation for ESG rating providers is set to reshape a market that Morningstar Sustainalytics has helped build, consolidating a fragmented industry and raising the compliance bar significantly.
Catalina Secreteanu, who leads market development and strategy at Morningstar Sustainalytics and sits on the EU Sustainable Finance Platform, told Investment Officer the new framework administered by ESMA marks a pivotal moment for the sector.
“Our expectation is that overall, the regulation will improve the integrity of the sector and will increase transparency,” Secreteanu said. “For players like us that have been in the space for a very long time, a European business reflected in our employee and client base, this is a very important development.”
The new EU regulation, kicking into force in July, marks the first time any jurisdiction has imposed mandatory oversight on the ESG ratings industry. Until now, providers operated without EU-wide rules, leaving methodologies inconsistent and greenwashing risks largely unchecked.
Under the new framework, ESMA becomes the direct supervisor of all providers operating in the bloc. To win authorisation, firms must open their methodologies to scrutiny, demonstrate clean governance, and erect strict firewalls against conflicts of interest. Non-compliance carries teeth: ESMA can inspect, suspend, or strip authorisation entirely.
Market consolidation
The regulation is widely expected to reshape the competitive landscape. For professional investors who rely on ESG ratings in fund construction and mandate management, the consolidation question carries direct implications. Fewer authorized providers means reduced redundancy in ratings sources and potentially greater concentration risk in the data infrastructure underpinning sustainable investment products, Secreteanu said.
The market they stand to consolidate is crowded. Alongside Morningstar Sustainalytics, the dominant players include MSCI, LSEG (which absorbed Refinitiv’s ESG unit), ISS ESG, and S&P Global, all of whom face the same ESMA authorisation requirements from July. Smaller specialist providers such as Ecovadis and Reprisk round out the field, though analysts expect the compliance burden to prove prohibitive for some of them.
The regulatory shift arrives against a backdrop of sustained institutional demand for ESG data, even as the public debate around sustainable finance has turned more volatile.
Most asset owners see ESG as material
Morningstar Sustainalytics’ annual Voice of the Asset Owner survey, published in October 2025, found that 60 percent of European asset owners believe ESG factors have become more material, with asset owners in APAC reporting even higher levels of materiality.
Secreteanu cautioned against reading too much into headline movements such as asset manager withdrawals from net-zero coalitions. Those decisions, she said, often reflect responses to external scrutiny rather than changes in underlying investment policy. The more meaningful signal, in her view, is the continued shift of large institutional mandates out of labeled Article 8 and Article 9 funds into segregated mandates, a move that removes assets from public flow data without reducing ESG integration.
The shift toward raw data rather than composite ratings is also accelerating among institutional clients. Morningstar Sustainalytics has addressed this by separating its AI‑enabled data‑collection process from the analyst‑driven interpretation. In practice, its systems scan approximately six million documents each year, using natural language processing to filter out only the most relevant for analyst review.
Morningstar acquired Sustainalytics in 2020, and Secreteanu has been with the company since 2012, when she joined as its first London‑based employee.