Legal & Regulatory News

European Parliament Economics and Monetary Affairs Committee votes to amend the ESG ratings regulation

On 4 December 2023, during a meeting of the Economics and Monetary Affairs Committee (the Committee), Members of the European Parliament voted to amend the regulation proposed by the European Commission on environmental, social and governance (ESG) rating activities. The amendments are intended to increase transparency and competition amongst ratings providers.

The amendments include a requirement for ratings providers to produce separate ESG scores, rather than a single rating, to prevent low ratings for individual factors from being hidden. Furthermore, if a rating were aggregated, the ratings providers should describe the weighting of each factor in the aggregation, in addition to the rating given to each factor, alongside a justification for both.

In addition, the amended text requires that information should be included on whether the rating reflects alignment with the objectives of the following agreements:-

• the Paris Agreement for the “E” factor;
• the International Labour Organisation core conventions on Right to Organise and Collective Bargaining for the “S” factor; and
• the international standard on tax evasion and avoidance for the “G” factor.

The disclosure requirements were also amended by the Committee to encourage ratings providers to adopt a double materiality approach. Ratings providers will be required to disclose whether their analysis looks at the potential material risk to the rated entity and the material impact of the rated entity on the environment and society, or both.

The Committee intends to increase competition by specifying that rated entities will need to choose at least one ESG rating provider with a market share below 15% if they require multiple ESG ratings.

Click here to read the press release.

Click here to read the report on the proposal for a regulation on the transparency and integrity of ESG rating activities.