European Union leaders have agreed on a proposal to regulate ESG ratings providers, requiring them to be registered and monitored by financial authorities.
Under the planned framework jointly backed by the EU’s executive, the European Council, and its parliament, ESG ratings providers must abide by transparency rules that will oblige them to publish the data and methodologies behind their calculations.
The European Securities and Markets Authority (ESMA) will keep check of the companies.
The regulation is hoped to bring harmony to the fragmented ESG ratings sector, which has been frequently blamed for paving the way for greenwashing. The EU also expects that eventually there will be providers of separate E, S and G ratings.
When the proposal is passed, the EU is be the first major financial authority to bring ESG ratings firms within the orbit of regulators, a move that is also being considered in the UK and US.
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