Today, the European Commission has released their proposal for a regulation on ESG ratings and data providers. The demand from investors for ESG-focused investment products and solutions has grown exponentially in recent years and European regulations such as the Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), EU Taxonomy Regulation, and Shareholders Rights Directive (SRD II) have reinforced the need for asset managers to incorporate ESG considerations into their investment processes.
However, the reliance on external ESG data and ratings without sufficient regulation poses risks for asset managers. The lack of transparency in data sources, methodologies, and quality creates uncertainty and makes it difficult for asset managers to assess the true sustainability of their investments. EFAMA believes that prompt improvements are necessary to provide legal certainty and reliable ESG data and ratings for asset managers and investors.
The key elements of the legislative proposal that EFAMA supports include:
1. Transparency in data sources, quality, and methodologies. EFAMA recognizes the diverse approaches used by ESG data providers and ESG rating providers but calls for transparency regarding the origin of data, methodologies used, and estimates provided. This transparency will enhance comparability, allow asset managers to align data with their own ESG views, and improve the reliability of ESG assessments.
2. Managing potential conflicts of interest and ensuring robust data governance. To preserve market integrity, the regulatory framework should include requirements for internal controls and governance processes. This will help minimize potential conflicts of interest, especially with ESG index providers, and ensure the reliability and accuracy of ESG data and ratings.
3. International alignment. EFAMA emphasizes the need for international alignment to create a level playing field for EU providers and streamline regulations and standards. Divergent rules and requirements across jurisdictions would increase complexity and hinder the effectiveness of ESG ratings. EFAMA supports following the recommendations of the International Organization of Securities Commissions (IOSCO) in its Report and Call for Action on ESG ratings and data providers.
Chiara Chiodo, Regulatory Policy Advisor at EFAMA, states, “EFAMA believes that a comprehensive regulatory framework covering both ESG data providers and ESG rating providers is essential to ensure reliable and transparent ESG information. By addressing the challenges in the ESG data ecosystem, asset managers and investors will have access to robust information for informed decision-making and compliance with regulatory requirements.”
For further information, please contact:
Head of Communication & Membership Development
Tel: +32 2 548 26 52