Provisional Agreement On A Proposal For A Regulatory Framework For ESG Rating Activities

On the 5th of February 2024, the European Council and European Parliament reached a provisional political agreement on a proposal to regulate Environmental, Social and Governance (ESG) rating activities. The provisional agreement follows a Commission Proposal presented in June of 2023, which put forward a proposed regulation designed to promote quality and reliability among ESG Ratings Providers ('ERPs') and to boost investor confidence in ESG products.

ESG ratings generally provide a form of opinion on the exposure of a company or financial instrument to ESG factors as well as the related risks and their impact on the company and on society. ESG ratings have become a fundamental tool in ensuring transparency in the EU sustainable finance market and in establishing investor confidence in sustainable products, as they provide a critical source of information for investment strategies, risk management and disclosure obligations relevant to financial institutions