EFAMA calls for more transparency in ESG ratings framework

The European Fund and Asset Management Association (EFAMA) has called on the European Commission to strengthen its new regulatory proposal for ESG rating activities, part of its sustainable finance package of reforms.

EFAMA says it is supportive of a number of provisions set out in the reform proposals, including that fees charged for ESG ratings services are independent of the level of rating, and the proposed exclusion of ratings produced by internally regulated financial market participants for their own use.

The industry body is critical however that the Commission has not included ESG data providers within the legislative framework, noting that the data embedded in the work of ratings providers is as important to scrutinise as the ratings providers themselves.

EFAMA notes that the definition of ESG ratings should align with international guidelines and that legislation should differentiate between ESG ratings and ESG data products to avoid confusion.

It also advises that there should be greater transparency on fees, provision contracts and that transparency requirements in this area should be aligned with IOSCO recommendations.

“In the ESG rating world, transparency is the key that unlocks trust, accountability, and as a result, sustainable growth," said Chiara Chiodo, regulatory policy adviser at EFAMA. "We congratulate the Commission for the many improvements that the proposal will bring. However, we still believe that there is room to foster even more clarity and transparency for financial market participants, as well as end investors.”