In order to make sustainable investments easier, the EU wants to tighten the requirements for so-called ESG ratings. Investors should be able to better recognize the sustainability of a business model.
With the help of new transparency rules, investors should be able to invest their money more easily in sustainable forms of investment in the future. Negotiators from the European Parliament and EU states agreed yesterday on stricter requirements for so-called ESG ratings.
The abbreviation ESG stands for Environmental, Social and Governance. These ratings assess, among other things, the extent to which a company’s activities affect the environment, social issues, employees and management and how these factors in turn influence the company’s business.
ESMA will supervise providers of ESG ratings
The new rules are intended to make these assessments more reliable and easier to compare, according to the EU Council press release. The transparency and integrity of the business activities of ESG rating providers should be improved and potential conflicts of interest avoided.
Providers of ESG ratings must in future be authorized and supervised by the European Securities and Markets Authority (ESMA). They must meet transparency requirements with regard to methodology and information sources.
“Protection against greenwashing”
In addition, ESG ratings should be able to be broken down into their individual components and no longer just provide a single key figure for all areas. For example, if a company is rated in the area E (German Environment), information must also be provided as to whether the rating takes into account compliance with the Paris Climate Agreement.
This will enable investors to make more conscious decisions and be protected from being misled by greenwashing, as Parliament announced. Greenwashing means that supposedly sustainable financial products are presented as greener than they actually are.
“Historic breakthrough”
“This agreement represents a historic breakthrough for sustainable finance. It was high time to set clear rules to improve transparency in the ESG rating process and thus restore trust in the sustainable finance sector,” said responsible rapporteur Aurore Lalucq.
The EU states and Parliament still have to agree to the compromise, but this is considered a formality.
Heidi Radvilas, HR, tagesschau, February 6, 2024 4:40 p.m