The European Securities and Markets Authority on Friday launched a public consultation on proposed regulatory technical standards to enhance the transparency and integrity of ESG rating activities within the European Union.
The consultation paper, published under the EU’s new Regulation on the transparency and integrity of ESG rating activities, outlines proposed rules for disclosure, governance, and operations of ESG rating providers.
The regulation, adopted in 2024, is a cornerstone of the EU’s strategy to foster investor trust and comparability in sustainable finance.
“Improving trust in ESG ratings is critical to the success of the EU’s sustainable finance agenda,” said ESMA Chair Verena Ross in a statement accompanying the consultation. “Our proposals seek to ensure that ESG ratings are produced and used in a transparent and robust manner.”
Disclosure of Conflicts of Interest and Outsourcing
Key proposals include disclosure requirements for rating methodologies, models, and data sources; transparency obligations regarding potential conflicts of interest; and conditions for outsourcing rating activities.
ESMA also proposes criteria for the assessment of applications for registration and endorsement of third-country ESG rating providers.
The paper invites feedback from stakeholders, including financial institutions, civil society and national regulators. The consultation runs until June 28, 2025, after which ESMA will submit final draft standards to the European Commission for endorsement.
The regulation applies to all ESG rating providers operating in the EU, with certain exemptions for smaller entities. Once adopted, the standards are expected to be legally binding across the bloc.
The initiative comes amid growing scrutiny over the reliability and comparability of ESG ratings, which investors are increasingly using to guide capital allocation and assess sustainability risks.
