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Strict requirements for providers of ESG ratings should not hinder the continuous need for innovation in the ESG rating industry. Eumedion writes this today in its response to the European Commission’s proposal for a regulation on the transparency and integrity of ESG rating activities, which was published on 13 June.

Even though Eumedion preferred a targeted EU intervention based on a self-regulation approach (as stated in the June 2022 response to the European Commission’ consultation), the proposal lays down a regulation providing for a strict registration and authorisation process. Eumedion not only points out that such strict requirements should not hinder innovation, but that it is also paramount that potential exemptions to requirements for small or medium-sized undertakings should not compromise on the general principles targeting the quality and integrity of ratings. Other issues in the proposal concern the benefits of further alignment within the wider EU sustainable finance framework, suggestions to prevent unintentionally capturing asset managers within the scope of the regulation, strengthening the requirements for engagement with rated entities, and a further specification of the separation of potentially conflicting activities (such as advisory). Lastly, while Eumedion supports excluding from the scope of the proposed regulation the provision of raw ESG data that do not contain an element of rating or scoring, minimum transparency requirements for these ESG data providers is warranted, e.g. focusing on transparency around data sourcing and/or methodologies for estimates. Such a targeted intervention should be based on a self-regulatory approach, such as a code of conduct.