The European Banking Federation responded to the EC Targeted Consultation on the functioning of the ESG ratings market in the European Union and on the Consideration of ESG factors in credit ratings.
While on one side ESG ratings are fundamental tools to deal with ESG
investments and financing decisions, on the other side the rapid
development and increasing reliance on them by market actors,
highlighted a variety of issues linked to the market’s functioning. More
precisely, the market is perceived as being too fragmented and not
working properly.
In fact:
- The methodological approach adopted by rating providers is often
diverging, leading to different outcomes. As a consequence, issues of
comparability among ratings arise: one product or company can be rated
in three different ways if rated by three different providers.
- Ratings are currently mainly provided by large market players
headquartered outside of the European Union and this strongly impacts
the levels of availability and reliability of data. Moreover, smaller
ratings providers face strong entry barriers to enter the market and are
often excluded from it.
- An EU intervention is considered as necessary to provide for a
common methodological framework, imposing transparency of requirements
on ESG ratings agencies and to achieve a greater level of harmonization
across ratings.
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