AFEP response to the European Commission consultation on the functioning of the ESG ratings market

AFEP calls for the European Commission to launch a European legislative initiative to regulate the activity of ESG (Environmental, Social and Governance) rating agencies, imposing substantial organisational and transparency obligations, inspired by those applying to credit rating agencies and proxy advisers. AFEP also supports the introduction of a system of registration and supervision by ESMA, and calls for the latter to follow up on the implementation of its recommendations regarding the influence of sustainability factors in credit rating.

AFEP’s requests, as expressed in its response to the Commission consultation, are based on the following observations:

  • Increasing importance of ESG ratings, and ESG data more generally, to meet new regulatory requirements and the demands of investors and other users;
  • Unregulated market, highly concentrated and dominated by American players who do not always take sufficient account of European, sectoral or national specificities;
  • Low level of maturity and comparability of ESG ratings which do not always allow for an understanding of the nature and reasoning behind the assessments;
  • Companies’ dissatisfaction with the workload of responding to questionnaires, the level of transparency of methodologies and performance expectations, the quality of the dialogue with analysts, the possibilities for reviewing draft reports, obtaining the results of analyses free of charge and the management of conflicts of interest;

Room for improvement in the information given by credit rating agencies on the integration of sustainability factors in their methodology.

AFEP response to EC consultation on ESG ratings