EU Commission proposes regulation for ESG rating providers
“We have the foundations of the sustainable finance framework in place. Now is time to build on them. Today we are taking steps to further develop the EU Taxonomy. And we are bringing more transparency and integrity to the market by introducing rules on the operations of ESG rating agencies.”
The European Commission has announced additional activities to the EU Taxonomy and proposed new rules for Environmental, Social and Governance (ESG) rating providers.
The goal is to ensure that the sustainable finance framework works for companies that want to invest in their transition to sustainability.
New criteria for EU Taxonomy
In regard to the EU Taxonomy, the EU Commission approved in principle a new set of criteria for economic activities making a substantial contribution to one or more of the non-climate environmental objectives, namely:
- sustainable use and protection of water and marine resources,
- transition to a circular economy,
- pollution prevention and control,
- protection and restoration of biodiversity and ecosystems.
The Commission also adopted targeted amendments to the EU Taxonomy Climate Delegated Act, which expand on economic activities contributing to climate change mitigation and adaptation not included so far – in particular in the manufacturing and transport sectors.
EU Commission wants to prevent conflicts of interest to increase integrity of ESG rating providers
In regard to the Commission’s proposal for a regulation of ESG (Environmental, Social and Governance) ratings providers, the new rules are meant to empower investors to make better informed decisions regarding sustainable investments.
The proposal will require that ESG rating providers offering services to investors and companies in the EU be authorised and supervised by the European Securities and Markets Authority (ESMA). This will also ensure the quality and reliability of their services to protect investors and ensure market integrity.
ESG ratings play an important role in the EU sustainable finance market, but the ESG ratings market currently suffers from a lack of transparency. By proposing regulation to improve the reliability and transparency of ESG ratings activities, the European Commission believes the current issues will be tackled. The new organizational principles and clear rules on the prevention of conflicts of interest will increase the integrity of the operations of ESG rating providers.
Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said: “We have the foundations of the sustainable finance framework in place. Now is time to build on them. Today we are taking steps to further develop the EU Taxonomy. And we are bringing more transparency and integrity to the market by introducing rules on the operations of ESG rating agencies.
“Enhancing the usability and coherence of the sustainable finance framework will be our key priority. We also need to reap the full potential of transition finance to ensure that all companies irrespective of their starting points can have adequate tools and support for their transition efforts towards sustainability.”
