EU agrees first ever rules for ESG raters

Written by Adam Cadle

07/02/2024

EU States and the European Parliament have struck a deal for the bloc’s first ever set of rules to regulate ESG ratings of company sustainability credentials.

Under the incoming rules, hitherto unregulated ESG ratings providers in the EU will have to be authorised and supervised by ESMA.

Raters outside the bloc will need to have their ratings endorsed by a rater regulated in the EU. Furthermore, raters will have to explicitly disclose of their ratings cover how a company’s operations affect the environment or social factors, and not just the impact of ESG on a company’s bottom line.

"Increasing investor confidence through transparent and regulated ESG ratings can have a significant impact on our transition to a more socially responsible and sustainable future," said Vincent Van Peteghem, the finance minister of Belgium, which holds the EU presidency that helped to negotiate the deal.

"This agreement constitutes a historic breakthrough for sustainable finance," said Aurore Lalucq, a French centre left member of the European Parliament who was also part of the negotiating team.

Smaller ESG raters based in the EU will only have to comply with a lighter version of the rules in the first three years to help them grow in a sector dominated by a handful of large players like MSCI, S&P Global, London Stock Exchange Group, Moody's and Morningstar's Sustainalytics.

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