Eurosif response to the European Commission’s public consultation on the functioning of the ESG Ratings market in the EU
Today, Eurosif sent its response to the European Commission, responding to the public consultation on the functioning of the ESG ratings market in the EU and on the consideration of ESG Factors in credit ratings (link). Eurosif welcomes the opportunity to comment on the appropriate regulatory regime for ESG ratings providers and data services, and to share comments of the core building blocks of the regulatory framework being considered.
The market for ESG ratings and other ESG data services is growing rapidly to meet a growing and more sophisticated demand from asset managers and asset owners as sustainability matters are becoming ever more relevant to their investment strategies, spurring innovation in the ESG data space. Another factor driving the consumption of ESG data is the introduction of regulatory frameworks such as the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy, the Markets in Financial Instruments Directive (MiFID) and the Insurance Distribution Directive (IDD), which impose significant and granular reporting requirements on financial institutions. These factors are resulting in a significant increase of total costs for ESG-related data for asset managers and asset owners which needs to be closely monitored by policymakers.
In this context, we advocate for the following key points :
- A need for clear objectives: the aim of the regulatory framework should be to increase transparency on methodologies, conflicts of interest and fee structures.
- An immediate focus on ESG ratings, while monitoring market for other ESG-related data services.
- Seeking to achieve full correlation between ESG ratings should not be the stated aim of any regulatory intervention: the majority of professional investors appreciate the complexity and diversity currently on offer in the market.
- Transparency requirements should be aimed at satisfying the needs of professional investors: we would caution against any idea that ESG ratings should or will become mainstream for retail investors.
- A framework should focus on ESG ratings available for sale, not investors' internal ESG assessments
Victor van Hoorn, Executive Director – firstname.lastname@example.org
Marie Lavayssière, Communication & Events Manager – email@example.com