With the help of new transparency rules, investors should be able to invest their money more easily in sustainable forms of investment in the future. Negotiators from the European Parliament and EU states agreed on stricter requirements for so-called ESG ratings on Monday evening.
These ratings assess, among other things, the extent to which a company’s activities affect the environment, social issues and employees – and how these factors in turn influence the company’s business.
The new rules are intended to make these ratings more reliable and easier to compare. Providers of ESG ratings must in future be authorized and supervised by the European Securities and Markets Authority (ESMA). They must meet transparency requirements with regard to methodology and information sources.
Historic breakthrough
In addition, ESG ratings should be able to be broken down into their individual components and no longer just provide a single key figure for all areas. For example, if a company is rated in the E area (for Environment), information must also be provided as to whether the rating takes into account compliance with the Paris Climate Agreement.
In this way, investors should be able to make more conscious decisions and be protected from being misled by “greenwashing”, as Parliament announced. “Greenwashing” means that supposedly sustainable financial products are presented as “greener” than they actually are.
“This agreement represents a historic breakthrough for sustainable finance. It was high time to set clear rules to improve transparency in the ESG rating process and thus restore trust in the sustainable finance sector,” said responsible rapporteur Aurore Lalucq.
The EU states and Parliament still have to agree to the compromise, but this is considered a formality.
