ESG Ratings
ESG (environmental, social and governance) ratings are widely used by investors to assess companies’ sustainability-related risks, impacts and opportunities. For many financial market participants, particularly those without the resources to collect and analyse large volumes of ESG data themselves, ESG ratings are an important tool for informing investment decisions.
As interest in sustainable investing has grown, so too has the importance of ESG data and ratings. ESG ratings and data providers play a key role in the sustainable finance ecosystem by assessing companies’ environmental, social and governance performance and providing information that supports investment decisions.
The ESG Ratings Regulation
To improve the transparency, comparability and reliability of ESG ratings, the European Commission proposed the ESG Ratings Regulation in 2023. Following negotiations between the EU institutions, the Regulation was published in 2024.
The Regulation introduces transparency requirements for ESG rating providers. Among other things, providers must disclose how ratings are developed, including the separate E, S and G components and their respective weightings. They must also indicate whether their methodologies take into account key EU sustainability concepts, such as EU Taxonomy alignment.
To address potential conflicts of interest, the Regulation restricts ESG rating providers from carrying out certain activities alongside their ratings business, including consulting, auditing and credit rating services. It also establishes clear organisational separation requirements for providers that offer other services, such as banking, investment, insurance or benchmarking activities.
In addition, all ESG rating providers operating in the EU must register with and be supervised by the European Securities and Markets Authority (ESMA).
The ESG ratings Providers Regulation started applying on 2 July 2026. ESG ratings providers must now notify ESMA of their intention to continue operating in the EU and must register for authorisation by 2 November 2026.
