Enhancing Oversight: A Proposed Regulatory Framework for ESG Ratings Providers

The ESG ratings play a crucial role in the European sustainable finance market by facilitating the signaling of investment strategies and risk management regarding ESG to market participants. However, the rating market needs more transparency, where some companies provide insightful and reliable evaluations while others remain ambiguous. Therefore, this proposal comes at a good time to improve reliability and integrity by introducing new organisational principles and transparency rules regarding the methodologies and critical rating assumptions. Additionally, it calls for clear rules on conflict-of-interest prevention. The proposal requires the rating providers to be authorised and supervised by the European Securities and Markets Authority (ESMA).

This regulation will help the reputation of ESG ratings and facilitate the increase in their significance among investors, allowing for more efficient decisions and ultimately benefiting the flow of funds toward sustainable investments in line with the EU's sustainability objectives. The next steps for the regulation will include European Parliament and Council adopting their positions before the trilogue negotiations and further implementation.