The French and Dutch financial market regulators, the Autorité des marchés financiers (AMF) and, the Autoriteit Financiële Markten (AFM), announced today the release of a position paper calling for a European regulatory framework for providers of ESG data, ratings, and related services.
According to the regulators, ESG data and service providers play an increasingly important role in investment markets as investors demand for ESG integration in the investment process grows, and particularly in light of the significant growth in sustainable finance and investment driven by the European Green Deal.
In December 2019, The European Commission presented the European Green Deal, a roadmap for making the EU’s economy sustainable, setting ambitious climate and energy targets for 2030, and a continental goal of zero net emissions by 2050. Achieving these goals will require substantial investment, with €260 billion estimated to be needed by 2030.
While the regulators believe that ESG data and ratings service providers will play in increasingly vital role in this environment, they note that the services remain largely unregulated. A regulatory framework, according to the regulators, would make it possible to avert certain risks for investors, such as misallocation of investments or greenwashing. The framework will also provide increased transparency regarding the methodological choices and the origin of data used by the service providers, in order to ensure that they share a common understanding of ESG performance, and allow for better comparability between providers.
The AMF and AFM proposal calls for the creation of a European regulatory framework including transparency requirements on methodologies and on identification and management of conflicts of interest, as well as providing for organisational and operational requirements to ensure robust processes for data collection and processing. The supervision would be entrusted to ESMA (European Securities Markets Authority).
Laura van Geest, Chair of the Dutch Authority Financial markets, said:
“We believe providers of sustainablity-related services play a crucial role for investors in the market for sustainable finance. Many investors depend on them in their investment decisions. Introducing minimum transparency and organisational requirements should greatly benefit this key part of the sustainable finance ecosystem. This joint AMF/AFM position paper aims at contributing to the debate on what regulation of ESG rating and data services providers should look like. We would like to invite regulators, market players and other stakeholders to add their perspectives to this debate.”
Robert Ophèle, Chair of the Autorité des marches financiers, said:
“The sustainable investment market is growing rapidly, but its credibility depends largely on the quality and reliability of the ESG information used. It is with this objective in mind and to ensure investor confidence that we wish to propose with the AFM a European regulatory framework for ESG data and service providers. The construction of such a regulation should be put on the agenda of the renewed sustainable finance strategy and conducted collectively.”