Greenwashing and Trust via Enhanced Self‐Regulation: The Case of <scp>ESG</scp> Rating Providers in Sustainable Finance

ABSTRACT Polycentric governance is a trust‐intensive and trust‐dependent governance that should actively seek to build and restore trust. The different ways in which this is done are poorly understood. Our study of the environmental, social, and governance (ESG) strategies and the green transition clarifies the role of enhanced self‐regulation and intermediaries in trust‐building and trust‐repair in polycentric governance. ESG rating providers as intermediaries may help to build and repair trust, but as with any trustee, they represent a trust challenge as well. This article addresses these issues and is organized around three major questions: First, what are the political dynamics around the adoption of the rules for ESG ratings providers in the EU and United Kingdom? Second, what are the differences between the trust‐building and the trust‐repair strategies deployed? Third, how do these differences reflect the different approaches to the trust challenges of regulation by and of intermediaries? We apply process tracing and a comparative analysis of the regulation of ESG rating providers to generate insights into the trust‐building and trust‐repair strategies of rule‐makers. Our analysis leads us to identify varieties of enhanced self‐regulation that are differentiated by the regulatory strategies adopted by the rule‐makers vis‐à‐vis regulatory intermediaries. We show how such efforts may combine different elements of mandatory and voluntary regulation, and we shed light on the differentiated conceptualizations and complexities of the function of trust in polycentric governance regimes as a whole.