The European Council has recently taken a step towards regulating ESG ratings, focusing on enhancing investor confidence in sustainable products.
According to ESG News, these ESG ratings, pivotal in shaping the dynamics of capital markets, offer insights into a company’s sustainability profile, examining its societal and environmental impacts, as well as its exposure to sustainability risks.
To ensure the reliability and comparability of these ratings, the Council proposed stringent new rules. ESG rating providers are now mandated to secure authorisation and supervision from the European Securities and Markets Authority (ESMA). They are also required to adhere to stringent transparency guidelines concerning their methodologies and information sources. This move targets preventing conflicts of interest and ensuring the integrity of ESG ratings.
The Council’s negotiating mandate emphasises the conditions under which ESG ratings are regulated, including exemptions and requirements specific to providers operating within the EU. Providers outside the EU will need either an equivalence decision, an endorsement, or recognition to function in the EU market. Moreover, the Council has introduced a temporary, optional registration regime for smaller ESG rating providers, exempting them from certain fees and allowing them to adapt to the new regulatory environment gradually.
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