The main EU legislative body, the European Commission, has proposed new amendments to the EU Sustainable Finance package. The proposed rules seek to build on and strengthen the foundations of the EU sustainable finance framework, which looks at the way in which the EU plans to support companies as they transition to greener investment.
“The objective is to facilitate transition finance, not only for companies that have strong sustainability records already, but also for those that are at different starting points, with credible plans or targets to improve their sustainability performance,” it said.
Crucially, the proposed rules also look at ESG ratings and ESG rating providers.
In this blog, we look at the proposed amendments, and how they can impact businesses within EU markets.
What are the new rules?
Three main changes will apply to ESG rules:
- ESG rating providers offering services to investors and companies in the EU will now need to be authorised by the European Securities and Markets Authority (ESMA). They will also be supervised by the same agency. “This will ensure the quality and reliability of their services to protect investors and ensure market integrity,” the European Commission said in a statement.
- ESG rating providers will be obliged to review ESG ratings methodologies on an on-going basis and at least annually.
- ESG rating providers will also need to disclose information to the public on the methodologies, models and key rating assumptions which those providers use in their ESG rating activities and in each of their ESG ratings products.
How will this affect my business?
The European Commission noticed that companies and investors are facing challenges in the transition to a greener economy, especially when it comes to complying with new disclosure and reporting requirements.
“Currently, ESG ratings do not sufficiently enable users, investors and rated entities to take informed decisions as regards ESG-related risks, impacts and opportunities. As a consequence, confidence in ratings is being undermined,” the European Commission said.
The new rules are meant to increase confidence in ESG reports by increasing regulation on ESG providers. They are also meant to improve transparency in ESG reporting.
How can you prepare for tighter ESG rules?
As the EU proposes amendments to new EU rules surrounding ESG, businesses need to think ahead to ensure their operations are not affected.
Our sustainability experts at ClearVUE.Business stay in line with the latest EU legislation, ensuring that your business will remain compliant to ever-changing regulation.