Dutch supervisor calls for ESG ratings regulation
The Dutch financial regulator has said Europe should regulate providers of ESG ratings, adding that ratings agencies should be more transparent about models and data used to calculate ESG scores.
Responding to a live European Commission (EC) consultation, the Dutch Authority for Financial Markets (AFM) said regulating ESG ratings providers will help prevent the risk of greenwashing. But it said a lack of transparency behind the data and models used by ESG rating providers is “the main issue”, with significant differences between methodologies used by providers currently preventing comparability.
It added that ESG ratings services carry a risk of conflict of interest: “The operations of ratings agencies are currently not subject to any mandatory quality safeguards,” it told the EC.
AFM said the market for ESG data is growing, adding that this information will become more important for investors and other parties. Europe should introduce a proportionate regulatory regime for ESG ratings providers but also other ESG services, including data services and ESG scores, AFM said.
“This market is unregulated. This gives rise to the risk of greenwashing and investor protection risks, as well as the risk of misallocation of sustainable investments,” AFM said. “The AFM is in favour of introducing regulation for providers of ESG ratings, data and related services.”
The Dutch regulator set out its position in favour of EU regulation for ESG ratings at the end of 2020, alongside French counterpart AMF.
The EC’s consultation to assess the functioning of the ESG ratings market in Europe is due to close.
