ESG ratings and benchmarks in the European Union. The relatively new world of ESG indicators displays many similarities with the original markets for ratings and benchmarks but it also has some distinguishing features.
This paper explores to what extent the
regulatory strategies that were developed in ‘traditional’ financial law
to support confidence in ratings and benchmarks can be exported to the
‘new’ world of ESG finance. It concludes that policymakers should be
cautious when transposing rules from the ‘old world’ to the ‘new’ one.
This is especially the case with ESG ratings, for which credit
ratings are the immediate reference for regulation with the common label
of ‘rating’ being rather misleading and leading to the risk of an
anchoring effect in the design of new rules. First, due to their
multivariate nature, the assessments underlying ESG ratings are often
more subjective than those supporting traditional indicators. Second,
there seems to be a higher risk of regulatory failures connected to the
authorisation and registration labels in the new world of
sustainability.
The paper therefore suggests that the legal framework for financial
analysts could be a more suitable model to consider at this stage and
that the initial approach to ESG ratings should mostly focus on
disclosure.
full paper
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