The EU and the European Parliament have agreed new rules for the regulation of ESG ratings.
The new rules mean that ESG ratings providers in the EU will have to be authorised and supervised by the European Securities and Markets Authority (ESMA). Non-EU providers will have to be endorsed by a provider regulated in the EU.
Providers will have to disclose how a company’s operations affect ESG factors specifically. This “double materiality” means ratings will have to reflect how a company’s sustainability practices impact on both the company and the environment.
Providers will have to separate out ratings for environmental, social and governance factors. For a single ESG rating, the weightings of E, S and G factors will have to be published. Furthermore, environmental ratings will have to specify if they take into account alignment with the Paris Agreement.
The new rules will probably come into effect in 2025.
Vincent Van Peteghem, the finance minister of Belgium, which holds the EU presidency, said, “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.”