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  • Studio Paci

🌍 ESG Rating: European Union Strategic Initiative

🤝 Approval of the EU Council Mandate

The European Council has recently reached a fundamental agreement for the future of sustainable finance.

The decision pertains to the negotiating mandate for a new regulation on environmental, social, and governance (ESG) ratings.

This development is vitally important as it seeks to strengthen investor confidence in products that not only yield profit but are also environmentally and socially responsible. The adoption of this mandate is a significant step towards the establishment of a more ethical and transparent financial market, where sustainability is not just an option, but a necessity.


🌟 Importance of ESG Ratings

ESG ratings are increasingly becoming a crucial factor in the assessment of corporate performance.

These ratings go beyond measuring a company's financial success to also evaluate how it handles its environmental, social, and governance responsibilities.

With the introduction of the new regulation, the role of these ratings will become even more central, significantly influencing investor decisions.

These changes aim to ensure that ESG ratings are more reliable and comparable, providing investors with a solid foundation for their investment choices.

Thus, promoting an economy that measures success not just economically but also in terms of positive impact on society and the environment.


📋 Regulations Proposed by the European Commission

The European Commission has proposed stringent rules for ESG rating providers. Starting from June 2023, all providers will need to obtain specific authorization from ESMA (European Securities and Markets Authority) and operate in compliance with strict transparency standards.

This means that every aspect of their methodology and information sources must be open and transparent.

This move is crucial to prevent conflicts of interest and ensure that the evaluations provided are as objective and reliable as possible.

The proposed rules represent an important step forward in the regulation of a sector that has so far been relatively unregulated.


💡 Key Changes and Next Steps


Main Modifications Made by the Council

The Council has made significant changes to the negotiating mandate, more clearly outlining the circumstances under which ESG ratings fall within the scope of the regulation.

This includes specifying that ESG ratings must encompass not only environmental and social factors but also those related to human rights or governance.

This alignment with the corporate sustainability reporting directive represents a further step towards a holistic approach to sustainability.

For ESG rating providers wishing to operate in the EU, the Council has established that they must meet certain requirements, including obtaining authorization from ESMA. Additionally, it has clarified the territorial scope of the regulation, providing precise guidance on what constitutes operating in the EU.


Simplified Registration Regime for Small Providers

A simplified and temporary registration regime has been introduced to facilitate market entry for small providers.

This regime includes exemptions from certain fees and the obligation to comply with principles of transparency and governance.


Separation between Business and Activities

The Council has proposed operational flexibility for ESG rating providers, allowing for the absence of a separate legal entity for certain activities, provided that adequate measures are taken to prevent conflicts of interest.


📈Implications and Impact These new regulations represent a significant advancement in promoting sustainable practices in the financial sector.

With the introduction of these regulations, the European Union positions itself as a leader in the development of a responsible and sustainable financial system.

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