Essence of the act:
This Regulation introduces a comprehensive framework for Environmental, Social and Governance (ESG) rating activities in the EU. It establishes requirements for ESG rating providers’ authorization, transparency, and operational integrity. The act aims to enhance the quality and reliability of ESG ratings while preventing greenwashing and ensuring investor protection.Structure and main provisions:
The Regulation consists of five titles covering:- Subject matter, scope, and definitions- Requirements for ESG rating providers to operate in the EU- Integrity and reliability requirements- Delegation and implementing acts- Transitional and final provisionsKey changes include:- Mandatory authorization by ESMA for ESG rating providers- Separation of E, S, and G ratings with clear disclosure of methodologies- Strict conflict of interest management requirements- New transparency obligations regarding data sources and methodologies- Special regime for small ESG rating providersMost important provisions:1. ESG rating providers must obtain ESMA authorization to operate in the EU2. Rating methodologies must be rigorous, systematic, and transparent3. Providers must separate environmental, social, and governance ratings rather than providing only aggregated ratings4. Providers must disclose their methodologies, data sources, and potential conflicts of interest5. Providers cannot combine ESG ratings with certain other activities like consulting or credit ratings6. ESMA has extensive supervisory and enforcement powers, including the ability to impose fines7. Third-country providers must comply with equivalence, endorsement, or recognition requirements to operate in the EU
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