European Council greenlights new regulation on regulating ESG ratings agencies

On 19 November 2024, the Council of the European Union (“Council”) adopted a new regulation on environmental, social and governance (ESG) rating activities.¹ The new regulation, which was presented by the European Commission on 13 June 2023, aims to make ESG rating activities in the EU more consistent, transparent and comparable.²  This will in turn build investors’ confidence in sustainable financial products.  We previously commented on the Council’s agreement to regulate ESG ratings providers in December 2023, and the provisional agreement reached between the Council and the European Parliament in February 2024.

Among other things, the new regulation aims to strengthen the reliability and comparability of ESG rating by improving the transparency and integrity of the operations that ESG ratings providers conduct.  In particular:

• ESG ratings providers established in the EU:
  • will be authorised and supervised by the European Securities and Markets Authority; and
  • will have to comply with certain transparency requirements.
• ESG ratings provides established outside the EU that wish to operate within the EU will need to:
  • obtain an endorsement of their ESG ratings by an EU authorised ESG rating provider;
  • obtain a recognition based on a quantitative criterion; or
  • be included in the EU registry of ESG rating providers on the basis of an equivalence decision.

The new regulation also requires ESG rating providers to take “all necessary steps” to ensure that that they are not affected by any existing or potential conflict of interest (Article 25).

Next steps

The regulation will be published in the EU’s Official Journal and enter into force 20 days later. The regulation will apply 18 months after the date of its entry into force.

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The Mayer Brown team is closely monitoring these developments and their potential implications, particularly for market participants in the finance sector and across the asset management and investments community.

1. Environmental, social and governance (ESG) ratings: Council greenlights new regulation, Council of the EU, Press Release, 19 November 2024, available at: https://www.consilium.europa.eu/en/press/press-releases/2024/11/19/environmental-social-and-governance-esg-ratings-council-greenlights-new-regulation/
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2. Regulation on the transparency and integrity of Environmental, Social and Governance (ESG) rating activities, and amending Regulations (EU) 2019/2088 and (EU) 2023/2859, available at: https://data.consilium.europa.eu/doc/document/PE-43-2024-INIT/en/pdf ↩︎

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