PB 4/2022: Key observations about the open EU consultation on the functioning of the EU ESG ratings market

• The European Commission has launched a consultation on the functioning of the ESG ratings market in the European Union and on the consideration of ESG factors in credit ratings. The consultation is open until 6 June 2022, accessible here: https://ec.europa.eu/info/consultations/finance-2022-esg-ratings_en
• The consultation is driven by the growing importance of ESG ratings and raises specific questions in relation to concerns identified in the study commissioned by the European Commission and published in January 2021.
• Concerns relate to transparency about methodologies and data sources; timeliness, accuracy and reliability of ESG ratings; biases in relation to size and location of rated companies; and potential conflicts of interest of rating providers. A 2021 consultation confirmed these concerns, in particular around comparability and reliability of ESG ratings.
• We recommend adopting a mandatory framework for disclosure of key assumptions, most sensitive methodology features and objectives of ESG ratings. Such framework shall reflect on different users of ESG ratings and their ability to access and use additional (meta-)information about ESG scores, and keep in mind that a competitive and diversified market should be characterised by differences amongst competing ESG rating providers, as long as market participants and users are able to appreciate the reasons behind such differences.

This Policy Brief is written in cooperation with Climate & Company, the Sustainable Finance Research Platform’s partner organization for EU outreach.