ESG Ratings Get a Boost

EU's New Regulation Promises Greater Reliability

In a significant move for sustainable investing, the European Union Parliament has adopted a new regulation aimed at improving the reliability and comparability of Environmental, Social, and Governance (ESG) ratings. This development is poised to reshape the landscape of sustainable finance and bolster investor confidence in ESG products.

Photo by Towfiqu barbhuiya on Unsplash

Key Points of the New Regulation:

1. Transparency Requirements:

For the first time, ESG rating agencies will be required to disclose their methodologies. This transparency will allow investors to better understand how ratings are determined and compare different agencies' approaches.

Photo by Guillaume Périgois on Unsplash

2. Field Research Disclosure:

Rating agencies must now clearly state whether they conducted field research for a particular rating. This information helps investors gauge the depth of analysis behind each rating.

3. Enhanced Legal Protection:

Companies being rated will have stronger legal protection. Rating agencies must address complaints promptly and fairly, particularly regarding data sources and methodology application.

4. Separation of Activities:

To prevent conflicts of interest, the regulation mandates a strict separation between ESG rating activities and other services like auditing and advisory.

Photo by Carlos Muza on Unsplash