EC Consults on Case for ESG Ratings Reform

The consultation will feed into an impact assessment to evaluate need for policy initiative on ESG ratings.

The European Commission has issued a targeted consultation on the functioning of the ESG ratings market in the EU and on the consideration of ESG factors in credit ratings.

In a notice, the Commission said the consultation would help it to gain better insight on the functioning of the market for ESG ratings, as well as better understand how credit rating agencies (CRAs) incorporate ESG risks in their creditworthiness assessment.

Feedback from the consultation will feed into an impact assessment being prepared this year to evaluate whether a possible policy initiative on ESG ratings and on sustainability factors in credit ratings is needed. The impact assessment will detail the impacts, costs and options of a possible EU intervention.

The consultation covers the dynamics relating to the ESG ratings market, including the interplay between larger and smaller market players. It will help to inform the Commission on the use and objectives of ESG ratings, as well as to identify possible shortcomings in relation to the consideration of sustainability risks in credit ratings and the disclosures made by CRAs.

The Commission said the consultation will contribute to the achievement of European green deal objectives by improving the quality of information investors, businesses and other stakeholders use to make decisions impacting the transition to a sustainable economy.

The consultation is open for comment until 6 June.

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