EFAMA: Asset Managers support call for regulation of ESG data, research and ratings
18 December 2020
EFAMA, the voice of the European investment management industry, joins the French and Dutch financial market authorities’ call for a European regulation of ESG data, research and ratings.
European asset
managers are observing a
double-digit growth in the demand for ESG investments, and clients are
increasingly sophisticated in their preferences*.
Giorgio Botta, EFAMA Regulatory Policy
Advisor, commented: “Asset managers wish to encourage this ESG investment
trend by expanding their offering of sustainable products and by providing
investors with trustworthy and comparable information - also in response to
EU regulation introduced to fight greenwashing and enhance transparency. To
fulfil these objectives, investors need solid and reliable data. Given the
lack of publicly available information, asset managers are heavily reliant on
the information from third-party providers of ESG data, research and ratings,
which comes with high costs and many questions.”
- Market concentration and costs: EFAMA members observe
an increasing concentration in the market for ESG information, partly driven
by merger activity, and rising ESG data costs. This spike in the cost of ESG
data is particularly detrimental to smaller firms which have less resources
and bargaining power, and to end-investors who ultimately foot the bill.
- Comparability and reliability: third-party ESG data and research are
often inconsistent, and ratings may vary considerably among providers. This
limits the reliability, comparability and usefulness of the information
provided and expose investors to the risk of greenwashing.
- Transparency on methodologies: The methodologies used by third-party
providers to gather and process data lack transparency. More transparency
would enable asset managers to ascertain that the information provided can be
safely relied on in the context of their investment and product development
strategies.
- Potential conflicts of interest: the offering of a broad
range of products and services by third-party providers, combined with high
market concentration, raises conflict of interest concerns. To preserve
market integrity, rules aimed at identifying and managing potential conflicts
of interest are needed.
- Dialogue with rated companies: to improve the quality of research and
ratings, and avoid factually incorrect analyses and misleading or incorrect
conclusions, third-party providers should step up their dialogue with rated
companies. This would help them produce research and ratings that better capture
the context in which companies operate.
As indicated in EFAMA’s response to the European Commission’s consultation on
the renewed sustainable finance strategy**, it is important to improve the functioning of the ESG data,
research and ratings market. The renewed strategy provides an excellent opportunity
to address the industry’s concerns related to the transparency on
methodologies and the management of conflicts of interest. EFAMA therefore recommends
the European Commission to develop a European regulatory framework for
providers of ESG data, research and ratings, in line with the recent joint
call from the AFM and AMF.EFAMA
© EFAMA - European Fund and Asset Management Association
