Jerusalem, 10 February, 2026 (TPS-IL) — As global investment in “green” companies grows, a pressing question is emerging: how can investors tell which companies are genuinely environmentally responsible and which are simply pretending to be? A new Israeli-British study looks closely at the role of ESG rating firms, the companies that score businesses on their environmental, Social, and governance practices. These ratings increasingly influence where investors put their money, but the study shows that the firms providing the scores themselves are at the center of the trust problem.
ESG stands for Environmental, Social, and Governance. Environmental factors include things like pollution, energy use, and carbon emissions. Social factors cover how a company treats workers, respects human rights, and interacts with communities. Governance looks at how a company is run, including board structure, management decisions, and transparency. ESG ratings measure a company’s performance in these areas, helping investors decide whether it is truly responsible or just marketing itself as “green,” a phenomenon referred to as “greenwashing.”
Global investment in sustainable finance has reached $30.3 trillion, according to a 2022 report by the Global Sustainable Investment Alliance (GSIA). Markets outside the United States, including Europe, Canada, Japan, Australia, and New Zealand, have grown by about 20% since 2020. In the U.S., stricter rules on what counts as “sustainable” caused reported assets to drop from $17 trillion in 2020 to $8.4 trillion in 2022. The GSIA says clearer rules, better data, and consistent reporting are needed to make sure these investments truly help the shift to a sustainable economy.
The Israeli-British research, published in the peer-reviewed Regulation & Governance, was co-authored by Professor David Levi-Faur of the Hebrew University of Jerusalem and Agnieszka Smoleńska of the London School of Economics. The authors argue that trust is the backbone of sustainable finance, but it is fragile and easily broken.
“ESG ratings are supposed to help investors see which companies are really doing good for the environment and society,” Smoleńska said. “But as these ratings have become more powerful, concerns have grown about inconsistent scores, unclear methods, and potential conflicts of interest.”
What makes the study particularly important is its insight into how regulators are responding.
Rather than taking full control of ESG ratings, authorities in Europe and the UK are using a model the researchers call “enhanced self-regulation,” which combines government oversight with rules set by the industry itself. This approach recognizes a modern reality: governments no longer regulate markets alone but rely on intermediaries like rating agencies to translate complex ideas, such as sustainability, into usable market signals. The credibility of these intermediaries is therefore central to the credibility of the entire system.
The study also makes a distinction between building trust and repairing it once it is damaged. By comparing EU and UK approaches, the authors show that policymakers use different strategies depending on whether ESG ratings are new and need credibility or are already seen as unreliable and require correction. In both situations, the rating firms are central to creating trust—but they are also part of the problem. “Those who are meant to create trust must themselves be trusted,” the researchers wrote.
Investors can use the study’s findings to be more careful about ESG ratings. The research shows that the agencies giving these scores are not automatically trustworthy. To make better investment decisions, investors should consider not just the ratings themselves but also how the ratings are produced, including the methods and transparency of the rating agencies.
The study also provides guidance for regulators and companies. Governments can improve credibility in ESG markets by using enhanced self-regulation, combining oversight with industry-led rules. Companies, in turn, can benefit by understanding how ratings work and what regulators expect, allowing them to improve governance, transparency, and sustainability practices. At the same time, regulating the rating agencies themselves helps reduce “greenwashing.”
“The message is simple,” Levi-Faur said. “Without trust, the move toward green investment risks being little more than marketing, not real change.”
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