On 4 December 2023, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) approved its position on the Commission proposal for regulating ESG rating providers to improve the governance and transparency of ESG ratings.
Finance Watch, the non-profit association dedicated to reforming finance in the interest of citizens, supports important improvements that have been made to the Commission’s proposal by the Parliament through additional transparency rules and a reinforcement of the conflict of interest provisions.
A key improvement is the obligation for ESG rating providers to disclose standalone assessments of the E, S and G components of ESG ratings. Currently, there is a structural problem with the aggregation of environmental, social and governance factors which have little to do with one another. It can lead to confusing situations where an enterprise with quality governance and good social policies, but a disastrous environmental impact, can have a high ESG rating and, subsequently, make its way into ESG investment portfolios.
The ECON text better aligns the conflict of interest provisions with the EU’s Audit Directive and the Credit Rating Agency Regulation. The measures in this regard include thresholds for shareholdings in multiple ESG rating providers to prevent ownership concentration, as well as measures to guarantee the independence of ESG analysts.
Vincent Vandeloise, Senior Research and Advocacy Officer at Finance Watch said:
“The fact that the position was adopted by a large majority demonstrates the recognition of the need to help investors understand the objectives and the underlying methodology of the ESG ratings, and to improve their governance. ECON’s position contributes to better addressing the problems pointed out by the Commission. In particular, the disaggregation of ESG ratings, the introduction of disclosure templates and leverage from the Taxonomy Regulation are elements that will improve the interpretation of ratings and allow a better comparability.”
Trilogue discussions will start once the Council has finalised its position.
To arrange an interview with Vincent Vandeloise, Senior Research & Advocacy Officer at Finance Watch, please contact Alison Burns at firstname.lastname@example.org or call on +32 (0)471577233
About Finance Watch
Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.
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