ESG | New EU regulation on environmental, social and governance (ESG) ratings adopted

On 19 November 2024, the European Parliament and the Council adopted a new regulation on the transparency and integrity of Environmental, Social and Governance (ESG) rating activities. The regulation seeks to improve the reliability, integrity and transparency of ESG ratings by establishing clear rules for ESG rating providers operating within the EU. These ratings assess the sustainability profile of companies and financial instruments, evaluating their societal and environmental impacts, as well as exposure to sustainability risks. ESG ratings increasingly play a crucial role in capital markets, influencing investor decisions and trust in sustainable investments. The main provisions include (a) ESG rating providers in the EU must be authorized by the European Securities and Markets Authority (ESMA) and be subject to its supervision; (b) ESG rating providers will be required to disclose their methodologies and information sources for greater transparency; and (c) non-EU providers wishing to operate in the EU must either obtain endorsement from an authorized EU rating provider or be included in the EU register based on equivalence criteria. This new framework is expected to prevent conflicts of interest and enhance market integrity in the rapidly growing field of sustainable finance. The Regulation will enter into force 20 days after its publication in the Official Journal of the EU, with full application starting 18 months later.

Newsletter n. 102 – December 2024