The draft Regulation on ESG ratings proposed by the European Commission in June 2023 aims to establish a framework and tackle structural issues by combating possible conflicts of interests, imposing better transparency in the rating processes, and introducing an authorisation and supervision system for ESG rating providers (for both EU and non-EU entities). Although commendable, the proposal cannot fully fulfill its objective for reliable and comparable information.
BETTER FINANCE urges the European Parliament and Council of the EU to amend the proposal during the EU legislative process and ensure its timely adoption. Specifically, the draft Regulation urgently needs to:
- Expand protection provisions for retail investors against greenwashing;
- Establish a minimum sustainability requirement for ESG ratings to ensure certain degree of harmonisation between providers going beyond transparency of methodology;
- Include a requirement which can address conflicts of interest by integrating clearly labelled ratings' origin and who it is paid by (i.e. fund rating: warning, rating paid by the fund manager etc.)
Please read or download the position paper below. ⬇️