EU proposes regulating ESG ratings providers
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THE European Union is to regulate agencies providing environmental, social and governance (ESG) ratings in an effort to improve standards in an industry that guides trillions of dollars of investments.
Investors are increasingly buying stocks and bonds according to how companies rank on various ESG metrics, and the ratings industry is growing fast as demand for investment products packaged and marketed as meeting ESG criteria balloons.
“ESG ratings agencies that score companies on governance factors are completely unregulated, so it’s very difficult to compare ratings by different agencies. We have no clarity on how these ratings are reached and there appears to be conflict of interests,” Mairead McGuinness, European Commissioner for Financial Services, told reporters on Tuesday (Jun 13).
“We want them (ratings) to be reliable and comparable.”
Critics say ESG ratings methodologies are overly complex, opaque and tend to reward companies that disclose more information, rather than those that are best able to manage ESG risks or do the best job in limiting their negative impact.
Agencies providing ESG ratings include S&P Global, Moody’s, MSCI and Morningstar’s Sustainalytics.
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The European Commission announced its plan for ratings providers as part of a package of new measures unveiled on Tuesday designed to encourage more ethical investment. REUTERS
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