On Wednesday 20 December, the EU Council adopted its negotiating position on a proposal for a regulation governing the transparency of rating agencies with regard to environmental, social and governance (ESG) criteria.
Presented in June by the European Commission (see EUROPE 13200/14), the proposed regulation is intended to provide greater transparency on the different rating indices used by the agencies and to strengthen the reliability and comparability of ESG ratings.
In its negotiating mandate, the Council clarified the circumstances in which ESG ratings fall within the scope of the regulation, providing further details on the applicable exemptions, including private ESG ratings that are not intended to be made public or disseminated.
ESG rating providers wishing to operate in the EU will have to comply with certain requirements, including obtaining authorisation from the European Securities and Markets Authority (ESMA) or, in the case of ESG rating providers established outside the EU, an equivalence decision, endorsement of their ESG ratings or a recognition. Within 90 working days of receiving the visa application, ESMA should examine the application and decide whether or not to authorise the visa. ESMA should then publicly notify the decision to approve the ESG assessment provided by a third-country ESG assessment provider.
The Council also clarified the territorial scope of the regulation, specifying what constitutes an activity in the EU, and provided details of the provisions applicable under the endorsement regime.
The Council also introduced a streamlined, temporary and optional three-year registration regime for existing small ESG rating providers and new small markets entrants. These small providers are those whose consolidated annual net sales from all their activities are less than €12 million for the last three consecutive years.
Small ESG rating providers that opt for the lighter regime will not have to pay ESMA supervision fees. They will have to comply with certain general principles of organisation and governance, as well as transparency requirements to the public and users.
When they leave this temporary regime, small ESG rating providers will have to comply with all the provisions of the regulation, including the requirements relating to governance and supervisory fees.
Finally, with regard to the separation of companies and activities, the Council has introduced the possibility for ESG rating providers to not have a separate legal entity for certain activities, provided that there is a clear distinction between activities and that they put in place measures to avoid conflicts of interest.
For its part, the European Parliament approved its negotiating mandate at its December plenary session (see EUROPE 13306/18). Interinstitutional negotiations should therefore begin in January 2024.
Read the Council’s position: https://aeur.eu/f/a7a (Original version in French by Anne Damiani)