EC expected to publish ESG ratings regulation proposal in mid-June

Long-awaited proposal follows last year’s public consultation, which saw majority backing for legislative intervention in the ESG ratings space.

The European Commission is planning to publish a legislative proposal on the regulation of ESG ratings on 13 June, Responsible Investor understands.

The commission is aiming to address the EU ESG ratings market and ensure ESG factors are being sufficiently considered within credit ratings. It consulted on a range of proposed measures last year, including the introduction of conflict-of-interest rules, minimum disclosure requirements for ratings methodology, and a centralised EU registration system for providers.

As previously reported, more than 80 percent of respondents to the consultation backed legislative intervention in the ESG ratings space. However, most leading ESG and credit rating providers backed voluntary rules over legislation, and some rejected any intervention in the sector.

As the commission has already held a public consultation, the expected next steps after publishing its proposal will be adoption by the European Parliament and Council of member states.

One industry observer said the nomination of rapporteurs in Parliament and the start of discussions in the council would likely happen “in the next few months”. “But given the upcoming EU elections, it is difficult to say if there will be a lot of developments on the file during this mandate,” they added.

Regulation of ESG ratings, as well as ESG data, has shot up the agenda in the past two years.

In 2021, the European Securities and Markets Authority (ESMA) requested additional powers to regulate ESG ratings and data, after warning that the sector was a “fertile ground for potential conflicts of interest” as a result of widespread consolidation. ESMA launched a review of the EU ESG ratings sector in February 2022.

Global regulatory body IOSCO has also pushed for ESG data and ratings to be placed under the remit of securities regulators.

The UK in March kicked off a consultation on regulating ESG ratings, which closes on 30 June.

India has already tabled draft legislation covering ESG data providers, and Japan’s Financial Service Agency adopted a voluntary code of conduct for ratings providers in December.