The European Parliament this week approved new regulations that will provide investors with more transparency on Environmental, Social, and Governance (ESG) ratings. The rules mandate clear disclosures on E, S, and G factors and place EU-based rating providers under direct supervision by the European Securities and Markets Authority, Esma.
However, industry leaders, notably the European Fund and Asset Management Association, Efama, underlined a critical omission: the lack of regulation for other ESG data products. This gap raises concerns about potential greenwashing and underscores the need for a comprehensive framework to ensure transparency. Efama specifically called for swift action on a regulatory framework or a code of conduct for third-party ESG data products.
“Transparent and complete ESG information is key to fully empowering investors to make confident decisions when choosing financial products with sustainability features,” stated Chiara Chiodo, policy advisor at Efama.
Transparency and integrity
While acknowledging the importance of covering ESG ratings in the current regulation, Efama urges EU policymakers to address the remaining issues related to ESG data in the upcoming legislative mandate to boost the Capital Markets Union.
The provisional agreement between the European Council and Parliament, initiated in early February, focused on transparency and integrity, requiring authorization and supervision by Esma for EU-based ESG rating providers.
Despite addressing E, S, and G factors, the agreement falls short on regulating other ESG data products. Efama said it supports the progress made but urges EU legislators to proactively develop a regulatory framework or code of conduct for comprehensive ESG data product regulation. This call aligns with industry-led initiatives in the UK and aims to safeguard transparency in the evolving landscape of sustainable finance.