EU revamps ESG ratings industry in fresh investment push
The EU taxonomy on sustainable activities has released a new package of measures including regulations intended to clear up the ESG ratings provider industry.
ESG ratings play an important role in Europe's sustainable finance market as they provide information to investors and financial institutions regarding investment strategies and risk management on ESG factors.
Currently the ESG ratings market currently suffers from a lack of transparency, and the EU Commission is proposing a regulation to improve the reliability ratings activities.
According to an EU statement, the new rules will enable investors to make better informed decisions regarding sustainable investments. The proposal will also 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).
Mairead McGuinness, commissioner for the 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.
“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.”
The EU Taxonomy underpins the bloc’s sustainable finance framework and is intended to act as an important market transparency tool while preventing greenwashing.
The implementation of the taxonomy caused controversy last year with natural gas and nuclear included in the list of environmentally sustainable economic activities and the nations of France and Germany split over the issue.
Also included in the most recent updated package was the proposed set of EU Taxonomy 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, and protection and restoration of biodiversity and ecosystems.
In the UK, the Financial Conduct Authority proposed a Code of Conduct for ESG data providers in November last year.