Peter Cripps reflects on the demise of a respected SPO provider
The green bond market is today mourning the loss of one of its key players. Sustainalytics has decided to throw in the towel and wind down its SPO business, despite being the biggest assessment provider until as recently as 2024.
It is a sad day for the sustainable bond market because Sustainalytics has been one of its stalwarts, and can claim to have helped uphold standards and boost its integrity.
But the last few years have proved difficult for the business, as it was hit by a sustainable bond market which was declining while at the same time seeing increased competition from players with deep pockets.
One market insider told me: "Sustainalytics was one of the providers who upheld very high standards, which was sometimes a struggle for it. For the market, an important choice [of SPO provider] has now gone."
In its heyday, Sustainalytics was in the vanguard of the market, and it led the way in helping define what was green in a market that was unregulated and vulnerable to abuse and greenwashing.
But it began to seem behind the curve when last year it followed competitors by upgrading its methodology to include a tiered scale for its assessments.
One former employee told me that the process of upgrading its framework had been slowed by the numerous changes in personnel at the firm.
For Morningstar, which bought Sustainalytics in 2020, the SPO side of the business was an awkward fit as its customers were issuers, many of which were corporates or supranationals, with little crossover with Morningstar's institutional investor client base. Sustainalytics' ESG data and ratings business, on the other hand, seems a better fit.
The firm said in a statement: "The move was not a decision taken lightly and is part of a broader strategic shift to our core mission at Sustainalytics; delivering high-quality ESG ratings, data, analytics and insights to empower our asset manager and asset owner clients."
It is surprising that Sustainalytics is to be shut down, rather than sold. To my mind, a business with such a strong brand, reputation, expertise and workforce seems valuable.
The decision speaks volumes about the dire economics of the sustainable bond market.
Because there is a lack of greenium, there was never a lot of money flowing for SPOs. As a result, an SPO is often sold for as little as $20,000, and sources tell me that recently prices can be even lower as providers scramble for work.
So, money is tight for SPO providers, yet conducting these well requires a lot of work. Margins, I imagine, are wafer-thin. One financial services provider told me they had decided not to get involved in the SPO market because "there's no money in it".
Not only are issuance volumes under pressure, but so is the SPO market itself, with the EU Green Bond Standard being designed so that an SPO is not required, rather a certification.
And there is a trend towards more impact-focused issues – including gender-focused 'Orange Bonds' and climate resilience bonds – which in some cases have not secured SPOs.
Couple these cost pressures with declining issuance volumes in recent years, and a lack of new issuers in particular, and it is understandable why Morningstar said "it has become difficult for us to scale the SPO business properly, so we're shifting our resources to scalable opportunities".
Its market share, which dwindled to 15% in the first half of 2025 according to Environmental Finance research, will be snapped up by the other big players in the market.
It was overtaken by S&P and Moody's as the biggest SPO providers last year, as revealed by Environmental Finance Data.
S&P and Moody's had each bought dedicated SPO providers in recent years – Cicero Shades of Green and Vigeo Eiris, respectively – and were building their share of the market.
Its competitors are well respected and hopefully Sustainalytics' loss will not be too keenly felt.
But, for now, my thoughts are with those losing their jobs. One source told me there would have been more than 100 staff in the SPO business a year ago. I am not sure how many there are now, but I wish them well. They have helped the significant contribution Sustainalytics has made to the sustainable bond market in recent years.
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