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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.