ESG rating regulations should extend to data, say EU insurers
Measures included in the European Commission’s ESG rating regulation proposal have been welcomed by Insurance Europe and Pensions Europe as it will lead to “a significant enhancement in the transparency of ESG ratings”.
The two associations said they support the initiative’s aim of improved ESG rating providers’ independence and a reduction in potential conflicts of interest, and acknowledged the positive aspects of these measures and their role in ensuring and promoting a competitive market.
However, they also believe that further improvements are necessary to advance transparency, comparability and integrity within the ESG landscape. “Most importantly, the regulation should extend to ESG data itself. In the context of fulfilling sustainable finance obligations, the need for consistent and robust ESG data cannot be overstated. The absence of a comprehensive public database poses serious challenges for both the insurance and investment industries,” said the associations.
Insurance Europe and Pensions Europe have called on the co-legislators to include ESG data products in the scope of the regulation to address the broader ESG data challenges and ensure the integrity of the ESG landscape.
“There is an urgent need for the availability and transparency of ESG data to be improved, not only to fulfil regulatory requirements but, more importantly, to reallocate capital to sustainable assets. While the introduction of regulation, such as the Corporate Sustainability Reporting Directive and the European Single Access Point in the EU, represents a positive step, it will be a number of years before these pieces of regulation are fully implemented and operational,” they said.
The current situation necessitates continued reliance on purchased ESG data services, according to the associations, “so attaining comprehensive coverage of reporting entities and common definitions and data points will be a gradual process. Introducing a review clause proposing to consider expanding the scope to ESG data providers will, therefore, not be sufficient to address current and foreseeable data-gap problems. A solution is, therefore, needed now to support the financial green transition.”
They concluded: “The current market suffers from a deficiency in data integrity and reliability, which is of significant concern given that the quality of ESG ratings predominantly hinges on the data used for their computation. Therefore, it is of the utmost importance that raw data, even in the absence of an assessment, falls within the scope of the legislative proposal.”
