IEEFA’s past publications illustrate the pressing need to regulate environmental, social and governance (ESG) rating activities. In June 2023, the European Commission released a proposal for “a regulation of the European Parliament and of the Council on the transparency and integrity of environmental, social and governance rating activities” (the regulation). While the regulation represents a breakthrough and is largely welcomed by IEEFA, it is not fully aligned with the European Union’s (EU) sustainable finance framework.
The proposal for the regulation is part of the latest sustainable finance package that aims to “ensure that the EU sustainable finance framework continues to support companies and the financial sector, while encouraging the private funding of transition projects and technologies”. In the package, IEEFA positively notes some developments made by the Commission: (1) Inclusion of activities under non-climate environmental objectives to the EU Taxonomy; (2) attempts to enhance the usability of the EU Taxonomy criteria and disclosures by launching various tools in the EU Taxonomy Navigator; and (3) attempts to provide clarification of the concept of transition finance and relevant recommendations.
Nevertheless, the proposed regulation fails to show coherence with the EU sustainable finance framework which is built upon three pillars—the EU Taxonomy, disclosure regime and investment tools to develop sustainable solutions—nor does it explicitly uphold the principle of double materiality. These pitfalls would lessen the regulation’s effectiveness in addressing ESG rating activities’ shortcomings and suitability for fulfilling the European Green Deal objectives. In late August 2023, IEEFA submitted its response to the proposal, outlining the gaps between the regulation and the existing regulatory regime, together with our key concerns and recommendations.
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Public Analysis of Investments and Sustainability Evaluation