The European Council has set a course for enhanced transparency in environmental, social, and governance (ESG) ratings, in a bid to promote greater investor confidence in sustainable products.
These incoming regulations are designed to enhance the dependability and comparability of ESG ratings, according to ESG News.
The focus is on augmenting transparency and integrity within the operations of ESG ratings providers. These measures aim to increase the comparability of ratings while also mitigating potential conflicts of interest.
Under the light of these new requirements, ESG rating providers are required to obtain authorisation and oversight from the European Securities and Markets Authority (ESMA).
Additionally, they must adhere to transparency regulations, specifically related to their methodology and information sources. The regulations also entail specific measures aimed at preventing and managing conflicts of interest among providers.
ESG rating providers intending to operate within the EU must meet specific criteria, which involve securing authorisation from ESMA.
For ESG rating providers established outside the EU, compliance options include obtaining an equivalence decision, an endorsement of their ESG ratings, or recognition.
The Council has clarified the territorial scope of the regulation – and underlined what would fall under the remit of operating in the EU.
ESG rating providers opting for the lighter regime won’t pay ESMA supervisory fees but must follow general organizational and governance principles, along with being transparent to the public and users.
They’ll also be subject to ESMA’s powers for information requests and investigations. When they leave this temporary regime, small ESG rating providers must adhere to all the regulations, including governance and supervisory fee requirements.
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