February 17, 2026 – 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 environmental, social, and governance (ESG) rating providers, the firms that score companies on ESG performance and increasingly influence investment decisions worldwide.

The article is co-authored by Agnieszka Smoleńska of the London School of Economics and the 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 spins. But as ESG has grown into a powerful financial tool, concerns have mounted on 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:

• ESG ratings agencies can help curb greenwashing—but only if they are properly governed
• Self-regulation can work, but only when backed by credible regulatory oversight by intermediaries
• Trust is not automatic; it must be actively designed, monitored, and maintained. It is a product of good institutional design.

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.

The research paper titled “Greenwashing and Trust via Enhanced Self-Regulation: The Case of ESG Rating Providers in Sustainable Finance” is now available in Regulation & Governance and can be accessed here.

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