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  • Studio Paci

ESG Rating: European Council and Parliament Announce a Common Solution

🌍 Introduction to Sustainable Finance

The world of sustainable finance has witnessed a milestone with the achievement of a provisional agreement between the EU Council and the European Parliament regarding the regulation of ESG (Environmental, Social, and Governance) rating activities.

This agreement aims to enhance investor confidence in sustainable products by providing a more accurate and reliable assessment of the sustainability of companies and their financial instruments.

ESG ratings, assessing the exposure to sustainability risks and the environmental and social impact, have become essential in the decision-making of sustainable investments.


📊 Key Elements of the ESG Rating Agreement

The agreement establishes clear criteria for the inclusion of ESG ratings within the scope of the regulation, with special attention to applicable exclusions and the definition of operation within the EU.

  • A significant innovation is the requirement for financial market participants to include detailed information on their websites about the methodologies used for ESG ratings, a move towards greater transparency.

  • Authorization and Supervision: ESG rating providers must obtain authorization and be subject to the supervision of the European Securities and Markets Authority (ESMA), ensuring compliance with strict transparency requirements.

  • Separation and Governance: A principle of separation between the various activities of ESG rating providers has been introduced to prevent conflicts of interest, imposing a clear organizational and operational distinction.

  • Regime for Small Enterprises: The agreement provides for a simplified and temporary registration regime for small enterprises, exempting them from supervision fees and applying simplified transparency requirements.


🔍 The Next Steps

Following the formal approval by the Council and Parliament, the regulation will come into effect 18 months after its official publication, marking the beginning of a new era in the evaluation of sustainability in the EU.


📈 Impact on Markets and Investor Confidence

This agreement is expected to have a significant impact on capital markets, increasing investor confidence in sustainable products through more reliable and comparable ESG ratings.

The increased transparency and integrity of rating providers' operations should facilitate a better assessment of sustainability risks and promote more conscious and responsible investments.


🌱 Conclusion

The agreement on ESG ratings represents a decisive step forward towards the maturation of sustainable finance, setting higher standards for the transparency, reliability, and comparability of environmental, social, and governance ratings.

This development not only strengthens investor confidence but also lays the groundwork for a more sustainable and responsible financial ecosystem at the European level.

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