EU Commission Suggests ESG Rating Rules

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by KnowESG
KnowESG_European Commission ESG ratings
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The transparency and reliability of ESG data for investors and managers are set to improve as the European Commission plans to regulate ESG ratings providers.

In a recent announcement, the EC proposed new rules aimed at empowering investors to make better-informed decisions regarding sustainable investments.

The commission acknowledges the lack of transparency in the ESG ratings market and intends to address this issue by implementing regulations that prevent conflicts of interest and enhance the integrity of ESG rating providers.

Before these regulations can take effect, they must receive approval from the European Parliament and EU leaders. Once approved, ESG rating providers offering services to investors and companies within the EU will be required to obtain authorisation and supervision from the European Securities and Markets Authority, Europe's financial services watchdog.

The European Fund and Asset Management Association (EFAMA) responded to the proposal, expressing concerns about the risks posed to managers due to the reliance on external ESG data and ratings without adequate regulation.

EFAMA emphasised the need for improved transparency in data sources and methodologies employed by ratings providers to facilitate better alignment and comparison of data with managers' and investors' ESG views and assessments.

In addition to the regulatory proposal, the European Commission also published the latest EU taxonomy criteria. These criteria will guide investors and managers in reporting their investments under the Sustainable Finance Disclosure Regulation.

The published criteria cover economic activities related to the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

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Source: Pensions & Investments


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