ESG rating activities

What the EU is doing and why?

Ratings on environmental, social and governance (ESG) factors provide information about the sustainability performance of a company or a financial instrument, by assessing its exposure to sustainability risks and/or its impact on people and the environment. There are different terms used by ESG ratings providers like ratings, scores, valuations, opinions, etc.

There are different type of ESG ratings/scores

• aggregated ratings of E, S and G factors, ratings of individual factors (e.g. environmental) or ratings of subfactors (e.g. climate risks)
• ratings using double materiality perspective (assessing risk and impacts) or single materiality perspective (assessing only risks, or only impacts) or using international frameworks/standards (e.g. SDGs)
• ratings involving the rating analysts or scores based purely on data analysis

ESG ratings are mainly developed and distributed by specialised ESG rating providers, however, some financial institutions also develop own ESG ratings.

ESG rating play an increasingly important role for investors and for fostering confidence in sustainable investments. Investors increasingly use it as part of their sustainable investment strategies to take into account risks and/or impacts linked to ESG issues. As for companies, they use it to look for and take account of operational risks and investment opportunities but also to see how they perform against ESG factors, compared to peers.

Regulation 2024/3005 on the transparency and integrity of ESG rating activities entered into force on 1 January 2025 and will come into application on 2 July 2026. It will ensure that investors and other stakeholders have access to reliable and comparable information about the ESG ratings objectives (what they assess) and methodologies (how they assess).

The new rules are based on recommendations of the International Organization of Securities Commissions (IOSCO) and will strengthen the governance of ESG rating providers as well as their independence. Importantly for investors and other users, the Regulation introduces disclosure obligations, both for the public and users/rated entities (in the case of ESG ratings distributed by subscription). Furthermore, the regulation requires that ESG rating providers offering services to investors and companies in the EU are authorised and supervised by the European Securities and Markets Authority (ESMA).

Relevant legislation