Consultation Paper on ESG Rating
European Securities and Markets Authority (ESMA) releases consultation paper on ESG rating, aimed at developing regulatory technical standards for EU ESG rating regulations.
In November 2024, the European Union officially implemented the ESG rating regulation, aiming to provide transparency and quality of ESG ratings, and promote the sustainable development of the EU’s financial industry.
Related Post: EU Proposes Regulation on ESG Rating Services
Introduction to the Consultation Paper on ESG Rating
The European Union authorizes the European Securities and Markets Authority to develop draft technical standards for ESG rating regulation by October 2025. This consultation paper proposes requirements for ESG rating activities in the following aspects:
Authorization and Recognition
ESG rating agencies need to obtain regulatory approval before conducting business in the EU. The forms of conducting business include registering as ESG rating agencies within the EU and establishing ESG rating agencies outside the EU. The information required for these two methods includes basic company information, ESG rating procedures, and conflict management methods.
Separation of Activities
ESG rating agencies cannot engage in consulting, credit rating, auditing, and assurance work simultaneously to avoid potential conflicts of interest in their business. ESG rating agencies can provide investment and credit services to the same company while being able to handle conflicts of interest, but they need to ensure that each business is conducted independently, and employees cannot engage in both tasks simultaneously.
Disclosure
ESG rating agencies need to disclose on their websites the key methods, assumptions, and models used in rating activities, so that ESG rating users, businesses, and the public can access this information. For ESG aggregate ratings, rating agencies also need to provide assessment information on individual environmental, social, and governance factors, and timely disclose updates on rating methods, assumptions, and models.
The European Securities and Markets Authority plans to solicit opinions from market participants before June 20, 2025.
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