A new study shows that sustainable finance relies on trust, but that trust challenges are increasingly focused on ESG rating providers, creating both a solution to greenwashing and a new regulatory risk. By comparing how the EU and the UK regulate ESG rating firms, the authors find that policymakers use “enhanced self-regulation,” combining public oversight with industry-led rules, to build trust in emerging ESG markets and repair trust when credibility is questioned. The study’s key insight is that trust-building and trust-repair require regulatory interventions that target both the regulatory intermediaries and the substantive aspects of their activities. Where ESG raters both shape markets and must themselves be trusted, regulating these intermediaries supports a credible market-led green transition.
As investors pour trillions into “sustainable” finance, a pressing question looms over global markets: who can we trust to say what’s really green—and what’s just greenwashing? A new study published in Regulation & Governance takes a hard look at that question by examining the role of ESG rating providers , the firms that score companies on environmental, social, and governance performance and increasingly influence investment decisions worldwide.
The article is co-authored by Agnieszka Smoleńska of the London School of Economics and Polish Academy of Sciences (formerly at the Hebrew University) and Prof. David Levi-Faur of the Hebrew University of Jerusalem .
Their conclusion is clear: trust is the backbone of sustainable finance but it is fragile, and easy to misuse.
The Trust Problem at the Heart of Sustainable Finance
ESG ratings are meant to help investors separate genuine sustainability efforts from marketing spin. But as ESG has grown into a powerful financial tool, concerns have mounted about inconsistent ratings, opaque methodologies, and conflicts of interest.
The study shows that regulators in the European Union and the United Kingdom are responding not by taking full control, but by turning to what the authors call “enhanced self-regulation”, a hybrid model that blends government oversight with industry-led standards.
This approach reflects a deeper reality of modern markets: governments no longer regulate alone. Instead, they rely on intermediaries like rating agencies to translate complex values, such as sustainability, into usable market signals.
Building Trust—or Repairing It
The research highlights an important distinction often overlooked in public debate: building trust is not the same as repairing trust once it has been damaged.
By comparing EU and UK regulatory approaches, the authors show how policymakers use different tools depending on whether ESG ratings are seen as emerging systems that need credibility, or troubled systems that need fixing. In both cases, ESG rating providers are central, but they are also part of the problem.
As the study puts it, those who are meant to create trust must themselves be trusted.
Why It Matters
For investors, regulators, and companies alike, the message is sobering but constructive:
As sustainable finance moves from niche to mainstream, this research offers a timely reminder: without trust, the green transition risks becoming just another branding exercise.
Regulation & Governance
Data/statistical analysis
Not applicable
Greenwashing and Trust via Enhanced Self-Regulation: The Case of ESG Rating Providers in Sustainable Finance
18-Dec-2025