EFAMA has responded to the European Commission’s proposals on ESG rating activities, which aim to help investors make more informed decisions.
The proposals are designed to provide a comprehensive understanding of ESG ratings methodologies, along with data sources and their biases. Fees for ESG ratings services will be independent of the level of rating or work-related outcome under the proposal, which EFAMA states “will lead to non-discriminatory treatment of ratings purchasers”.
However, while EFAMA commends the Commission on its proposal, it suggests that transparency around ratings services could be improved through the introduction of a more specific fee grid and the extension of such fairness principles to contractual provisions outside of fees.
Additionally, the organisation argues that ESG data and ratings providers should be brought within the legislative framework. By improving the reliability, quality and transparency of the two, both investors and regulators will be more able to trust the ESG ecosystem and make better decisions. As data and ratings are complementary, EFAMA states that both aspects must be addressed simultaneously.
EFAMA adds that the proposal could be strengthened by improving the transparency of data sources, ESG key performance indicators, measurement methodologies and the scope of assessed business activities. This will also help to align the proposal with international standards, it says.
Chiara Chiodo, regulatory policy advisor at EFAMA, comments: “In the ESG rating world, transparency is the key that unlocks trust, accountability, and as a result, sustainable growth. We congratulate the Commission for the many improvements that the proposal will bring. However, we still believe that there is room to foster even more clarity and transparency for financial market participants, as well as end investors.”
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