EFAMA welcomes the opportunity to respond to the EC’s targeted consultation on the functioning of the ESG rating market in the EU and on the consideration of ESG factors in credit ratings. Please note that our response covers, at the same time, ESG ratings and ESG data providers, as the demand for ESG “raw” data has been increasing at a steady pace. The use of ESG data has also rapidly shifted from a narrow set of investment products to being prolific across all investment products.
Given the increasing importance of ESG ratings in supporting financial actors’ risk management and the role they play in the investment decision process, it is essential to ensure these products are transparent and reliable. We acknowledge that market research providers and sustainability rating agencies have increased their efforts to address weaknesses in terms of accuracy, and quality assurance of the rating provider, however, there is still room for improvement, especially in tackling the lack of transparency in the methodology and data used and reducing the market concentration and rising cost of ESG data services.
EFAMA recommends that regulators and ESG ratings and data products providers focus their attention on:
- The development of a regulatory framework for ESG ratings and ESG data providers
- The parallel development of a voluntary code of conduct for ESG ratings and ESG data products providers
- Continue to work towards alleviating the data gap and allow financial market participants to act on a “best-effort” basis for live and pending regulatory obligations