EuropeanIssuers overall observed that ESG rating agencies do not have a sufficient level of maturity and comparability, presenting several issues with regards to transparency, methodological choices, comparability, and quality, thus leading to uncertainty and confusion about ESG in general, and ESG performance of specific companies in particular.
EuropeanIssuers contributed to the targeted consultation on the
functioning of the ESG ratings market in the European Union and on the
consideration of ESG factors in credit ratings.
EuropeanIssuers Secretary General, Florence Bindelle commented: “Among
the main issues identified by issuers across Europe, we note a lack of
convergence and comparability of non-financial ratings, which depends
also on a lack of clarity and alignment on definitions, lack of
transparency and standardised metrics, conflicts of interest, and
numerous biases.”
This provokes uncertainty, impossibility to align, risks of
misleading investors and doesn’t benefit to the overall need for
innovation in this field, adding more and more workload on companies,
due to the numerous questionnaires and resources required, but resulting
in having little added value despite the significant investment of time
and resources mobilised. Against this background, it is only evident
that companies across Europe note that it is very difficult to benefit
from ESG ratings and for investors to rely on them.
Nevertheless, issuers acknowledges that ESG ratings is constantly
evolving, and that innovation must remain possible and be fostered, and
therefore EuropeanIssuers is in favour of a stronger, more
comprehensive, and coherent framework of ESG ratings, allowing for a
better comparability, a better prevention of conflicts of interest, and
an increased transparency and quality of ratings.
EuropeanIssuers is in favour of an EU legal framework that will
standardise the current landscape, improving reliability of ESG ratings,
increased transparency, and a better dialogue between ESG rating
agencies and companies. In terms of content, EuropeanIssuers believes
that a European legislation should address many factors, including a
risk-based supervision by competent authorities, address governance
concerns on the internal organisation of structure of providers,
oversight on transparency, as well as disclosure on the prevention and
management of conflict of interest, methodology, qualification of the
analysts, sources of information, interaction with companies, fees. This
notwithstanding, EuropeanIssuers notes that it is important to strike a
balance between a strict oversight regime and innovation-friendly
framework. Too strict rules could result in market concentration of ESG
rating, which may disadvantage issuers in terms of market power, while a
weak or inexistent regime could reduce quality in the rating market.
EuropeanIssuers
© EuropeanIssuers
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