EU Council, Parliament Agree on ESG Ratings

The European Parliament and Council have signed off on a proposal to regulate ESG rating activities to boost investor confidence in sustainable products. The new rules aim to improve the comparability and reliability of ESG ratings by third-party providers by increasing transparency and restricting potential conflicts of interest. ESG ratings providers will now need to be authorised and supervised by the European Securities and Markets Authority and comply with transparency requirements. The Council and Parliament also agreed that financial market participants and financial advisers that disclose ESG ratings as part of their marketing communications would need to publicly display information about the methodologies they use. Additionally, the agreement foresees the potential provision of separate environmental, social and governance-focused ratings: if a single ESG rating is provided, E, S and G characteristics will need to be made explicit. The agreement will need to receive final approval from the EU Council and Parliament before going through the formal adoption procedure. The regulation will apply for 18 months following its formal adoption. “I welcome this agreement,” said Vincent Van Peteghem, Belgium’s Minister of Finance. “Increasing investor confidence through transparent and regulated ESG ratings can have a significant impact on our transition to a more socially responsible and sustainable future.”

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