EBF final response – ESG Ratings 2022

27 June 2022

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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