ESMA has written to the European Commission (EC) sharing its views on the main challenges in the area of ESG ratings and assessment tools. ESMA highlights the need to match the growth in demand for these products with appropriate regulatory requirements to ensure their quality and reliability.
ESMA identifies the following key points for consideration:
- The market for ESG ratings and other assessment tools is currently
unregulated and unsupervised. When combined with increasing regulatory
demands for consideration of ESG information, there are increased risks
of greenwashing, capital misallocation and products mis-selling.
- There should be a common definition of ESG ratings that covers the
broad spectrum of possible ESG assessments currently on offer. This will
help future-proof any regulatory framework and mitigate against
possible obsolescence.
- The supervisory and regulatory regime should be adapted to the
current market structure and accommodate both large multi-national
providers who may be subject to existing regulatory frameworks, as well
as smaller entities.
- ESG rating providers can be part of larger groups providing services
such as green bond certification and credit ratings. On the other hand,
smaller players would also benefit from having access to an EU-wide
regime. Given this overlap and to benefit from economies of scale in
supervision ESMA is ready to support possible future supervisory
responsibilities in this area.
ESMA’s letter builds on its response
to the EC’s consultation on the Renewed Sustainable Finance Strategy in
July 2020, where specific issues in relation to the ESG ratings and
assessment tools were raised.
letter to Commission
ESMA
© ESMA
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