The EU’s securities watchdog will review the market for ESG ratings on businesses. The sector has snowballed over the past several years. However, many of its aspects remained unregulated.
Primarily since the beginning of the Covid-19 pandemic, trillions of dollars have flowed into sustainable investments using ESG ratings as a guide to verify green credentials.
The introduction of new regulations would help develop a comprehensive picture of the size, structure, and revenues offerings of the different ESG rating providers operating within the bloc or those who want to do business with it.
Last November, regulators worldwide introduced global principles, or a framework to start policing ESG investment ratings for the first time. The decision was aimed to help combat “greenwashing,” which has become a significant issue.
Last week, the European Securities and Markets Authority announced the need to match the growth in demand for ESG products with “appropriate regulatory requirements.”
The information gathered will be used alongside a further public consultation to develop an impact assessment on the costs and options of a possible intervention by the bloc’s regulator.
It is presumed that it would be harder for regulators to identify and punish misleading claims without direct and simple rules.
The unregulated nature of the sustainable investing sector is becoming a more pressing issue for EU regulators as new rules are being rolled out. These rules mandate ESG disclosures by corporations which increase demand for ESG ratings.
