Countdown for harmonization – European Commission is gathering insights to ESG ratings

As soon as those harmonization efforts are finalised, next steps will likely involve the inclusion of ESG Risks in the capital buffer of credit institutions.

Background

ESG-Ratings remain in the regulatory focus of various institutions. Current initiatives strive to set standards in the ESG-Rating market.

Current regulatory initiatives

In a recent article we already pointed out the key drivers that led to the harmonization initiative of the European Commission (EC) regarding ESG-Ratings. That said, we would like to remind you of the ongoing survey of the EC in which you can take part by filling out the questionnaire until 6th of June. The EC strives to gain better insight in the functioning of the ESG-Rating market and in the incorporation of ESG risks into creditworthiness assessments by credit rating agencies.

The European Securities and Markets Authory (ESMA) has also been conducting a survey to collect information about the “size, structure, resourcing, revenues and product offerings of the different ESG rating providers operating in the EU” by 11th of March, in which it gathered evidence of ESG-Rating providers, users of ESG-Ratings and entities subject to rating assessment of ESG-Rating providers. The results gathered therein will also be used by the EC.

As soon as those harmonization efforts are finalised, next steps will likely involve the inclusion of ESG Risks in the capital buffer of credit institutions. For that ESG-Ratings are needed and it therefore heavily relies on the aforementioned harmonization efforts. To highlight that also from an academic view, three PwC colleagues (Martin Neisen, Dieter Lienland and Benjamin Bruhn) conducted research on that topic and published the paper ESG rating as input for a sustainability capital buffer in the Henry Stewart Publications which shall be highly recommended in that context.

Conclusion

We remain curious concerning further developments in the ESG-Rating market. If you are seeking advice in setting up an adequate ESG-Rating procedure, please feel free to reach out to us. Our experts have extensive experience in the development and implementation of ESG ratings, as well as the tailored selection of ESG rating agencies for your specific use case with regard to portfolio characteristics and in anticipation of upcoming harmonization efforts.

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