A rating agency accepted a preliminary injunction regarding a disputed corporate sustainability rating.

By Paul A. Davies, Michael D. Green, Joachim Grittmann, and Alexander Wilhelm

As reported by a number of German newspapers and the environmental press, a dispute between the US proxy advisory firm Institutional Shareholder Services (ISS) and the German industrial image processing company Isra Vision came to a rapid conclusion before the Regional Court of Munich when ISS withdrew its objection against a preliminary injunction. As a result, the relevant ESG rating concerning Isra Vision was not published.


ISS provides ratings and analytical services in respect of environmental, social, and governance (ESG) matters. ISS made a request to Isra Vision to participate in a sustainability review. After Isra Vision did not respond, ISS made its assessment on publicly available material. According to publicly available information, Isra Vision was given the worst rating (D-) in the assessment. As such, Isra Vision sought an injunction against the issuing of the rating.

Reasoning of the Court

The decision of the court in Munich in granting the preliminary injunction is not yet publicly available. However, it has attracted significant interest given that the case is likely the first such case in Germany in which a company has (successfully) challenged an ESG rating. According to the media, the court stated in its reasons for the preliminary injunction that the mere lack of information could not justify a low ESG rating of a company. In addition, the court is said to have stated that the rating agency’s analysis criteria should be closely aligned with the specific business operations (which was not the case with the rating prepared by ISS). Notably, the matter did not proceed to a final decision, since ISS withdrew its appeal.

Consequences for ESG Ratings

Providers of ESG-related ratings, such as ISS, MSCI, Sustainalytics, or Imug Rating, can have a material influence in respect of the investment and financing decisions of investors (e.g., with regard to private equity or mergers and acquisitions transactions). Furthermore, such rating agencies play an increasingly important role in lending and bond structuring, as well as in the decision-making process of shareholders and other stakeholders.

ISS has noted that its decision to accept the injunction was a pragmatic solution to this specific case and not a comment on ISS’s methodology in general nor its approach toward non-disclosed information. However, given the importance of ESG ratings, further disputes in which companies refuse to accept an ESG assessment are likely to occur — especially if the basis for the evaluation is not clear or if there is no cooperation between the company and the rating agency. With ESG ratings on the rise in Europe (particularly given the EU Green Deal and the desire to direct private sector investment in the fight against climate change), companies should consider how they handle requests from ESG rating agencies, and rating agencies should consider their approach to providing ratings (particularly if limited information is available).

Latham & Watkins will continue to monitor and report on developments in this area.