Negotiations between the European Parliament and the EU Council on the transparency of environmental, social and governance (ESG) rating activities (see EUROPE 13306/18), which began on Thursday 11 January, have already made good progress, according to a briefing note obtained by EUROPE. In particular, the negotiators discussed the scope of application, the third-country regime, governance, proportionality and transparency.
According to the document, the introductory remarks highlighted “a strong alignment of objectives between the three institutions” of the EU, despite their different approaches. The negotiators have begun discussions on the scope of the agreement. The Belgian Presidency of the EU Council insisted on ‘reverse solicitation’.
This regime allows third-country companies to provide investment services to clients established in the EU, provided that the service is initiated exclusively by the client. The EU Council wants to exempt non-European ESG rating providers in this situation.
However, the European Parliament rapporteur, Aurore Lalucq (S&D, French), expressed her concerns about these exemptions.
For its part, the European Commission has raised the issue of internal ESG ratings, citing fears of taking the exclusion too far given the amendments introduced by the two co-legislating institutions. The Belgian Presidency stressed that the Member States wished to avoid duplicate supervision, in particular because this would impose a disproportionate burden on already regulated entities.
These issues will therefore be addressed at a technical level. The Commission reassured the European Parliament that the scope would not be overly affected if the exemption on ‘reverse solicitation’ and the exclusion of internal ESG ratings were properly calibrated.
With regard to the third-country regime, Ms Lalucq defended the European Parliament’s proposal that ESG rating providers from jurisdictions where the regimes are deemed equivalent should obtain authorisation from the European Securities and Markets Authority (ESMA). The Commission supported the EU Council, explaining that this was a departure from existing European legislation.
The European Parliament also insisted on strengthening the rules of governance, in particular those relating to the prevention of conflicts of interest. The Belgian Presidency expressed its support for the European Parliament’s objectives, while insisting on the need to arrive at rules that respect the principles of proportionality and scalability.
Finally, the negotiators discussed the issues of proportionality and transparency. For the first point, it was agreed to delegate this issue to the technical level. For the second, the negotiators will seek to find a balance between transparency and the cost that this will entail for ESG rating providers.
The next interinstitutional trilogue negotiations will take place on Wednesday 24 January.
To read the document: https://aeur.eu/f/afg (Original version in French by Anne Damiani, with Mathieu Bion)