Sustainable Finance: Commission launches consultation on sustainability ratings and credit ratings

The European Commission yesterday published a call for evidence and a targeted consultation on environmental, social, and governance (ESG) ratings and sustainability factors in credit ratings. This is an integral part of the renewed sustainable finance strategy adopted in July 2021. Both credit ratings and ESG ratings are opinions provided by specialised entities and used by financial institutions and professional investors. ESG ratings generally assess the impact of environmental, social, and governance factors on a company and / or a company’s impact on the outside world. Credit ratings assess the creditworthiness of companies or financial instruments by providing an opinion on the default risk of a company. This consultation will help the Commission gain a better insight into the functioning of the market for ESG ratings, as well as a better understanding of how credit rating agencies incorporate ESG risks into their creditworthiness assessments. Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said: “Our Sustainable Finance Strategy supports the financial sector in playing its part in the European Green Deal. We need more private investment to meet the massive investment needs of funding the transition to climate neutrality and sustainability generally. Ratings help investors make informed decisions, so we’re looking forward to hearing how ESG ratings work at the moment and how they might work better. This is an important part of boosting capital markets and encouraging investor confidence in sustainable financial products.”Responses from market participants will feed into an impact assessment that will evaluate whether a possible policy initiative on ESG ratings, and on sustainability factors in credit ratings, is needed. These actions are expected to contribute to the achievement of the European Green Deal objectives by improving the quality of information on which basis investors, businesses and other stakeholders take decisions impacting the transition to a sustainable economy. The consultation will run until 6 June. We encourage all interested stakeholders to contribute.