On November 19, the European Council adopted a new regulation on ESG assessment and scoring. The new rules aim to make assessment and scoring in the EU consistent, transparent and comparable, in order to increase investor confidence in sustainable financial products.
ESG assessment and scoring provide context and current status of a company's ESG practices or the sustainability of a financial instrument.
As a result, ESG scoring is increasingly important to the functioning of capital markets and investor confidence in sustainable companies and investment products.
Specifically, ESG rating and scoring entities established in the Union will need to be licensed and supervised by the European Securities and Markets Commission (ESMA). They will have to comply with transparency requirements, in particular with regard to their methodology and the sources of information they use. ESG rating and scoring entities established outside the Union that wish to operate in the EU will need approval from the Commission or from a Commission-licensed entity.
This regulation will come into effect 18 months after it comes into effect (ie from June 06).