The European Commission issued a targeted consultation on the functioning of the ESG ratings market in the European Union and on the consideration of ESG factors in credit ratings to upgrade their insight on those ratings and risks assessment of credit rating agencies.

Consultation on ESG ratings market & ESG factors in credit ratings

The targeted consultation on environmental, social, and governance (ESG) ratings and sustainability factors in credit ratings is an integral part of the renewed sustainable finance strategy adopted in July 2021. Both credit ratings and ESG ratings are opinions provided by specialised entities and used by financial institutions and professional investors.

ESG ratings generally assess the impact of environmental, social, and governance factors on a company and a company’s impact on the outside world. Credit ratings assess the creditworthiness of companies or financial instruments by providing an opinion on the risk of default of a company.

This consultation will help the Commission gain a better insight on the functioning of the market for ESG ratings, as well as better understand how credit rating agencies (CRAs) incorporate ESG risks in their creditworthiness assessment. Responses from market participants will feed into an impact assessment that will evaluate whether a possible policy initiative on ESG ratings and on sustainability factors in credit ratings is needed.

These actions are expected to contribute to the achievement of the European green deal objectives by improving the quality of information on which basis investors, businesses and other stakeholders take decisions impacting the transition to a sustainable economy.

Consultation on ESG ratings market & ESG factors in credit ratings

The main stakeholders identified for this consultation are :

  1. ESG rating providers
  2. CRAs
  3. investors
  4. companies
  5. public authorities including supervisors
  6. civil society including NGOs, academics

Other interested stakeholders are welcome to contribute.

Consultation document can be found here.

Consultation on ESG ratings market & ESG factors in credit ratings

Source: European Commission