EUROPAPARLAMENTETS OCH RÅDETS FÖRORDNING (EU) 2024/3005 av den 27 november 2024 om transparens och integritet i betygsättningsverksamhet avseende miljö, samhällsansvar och bolagsstyrning (ESG-betyg), och om ändring av förordningarna (EU) 2019/2088 och (EU) 2023/2859 (Text av betydelse för EES)

(1)

On 25 September 2015, the UN General Assembly adopted a new global sustainable development framework, the 2030 Agenda for Sustainable Development (the ‘2030 Agenda’), having at its core the Sustainable Development Goals (SDGs). The Commission’s Communication of 22 November 2016 entitled ‘Next steps for a sustainable European future: European action for sustainability’ links the SDGs to the Union policy framework to ensure that all Union actions and policy initiatives, both within the Union and globally, take the SDGs on board at the outset. The European Council conclusions of 22 and 23 June 2017 confirmed the commitment of the Union and the Member States to the implementation of the 2030 Agenda in a full, coherent, comprehensive, integrated and effective manner and in close cooperation with partners and other stakeholders. In addition, the UN-supported Principles for Responsible Investment has, at the time of adoption of this Regulation, more than 5 300 signatories representing over EUR 120 trillion of assets under management. On 11 December 2019, the Commission published its communication entitled ‘The European Green Deal’ (the ‘European Green Deal’). On 30 June 2021, the European Climate Law was adopted as Regulation (EU) 2021/1119 of the European Parliament and of the Council (3), which enshrines in Union law the goal set out in the European Green Deal of Union economy and society becoming climate-neutral by 2050.

(2)

The transition to a sustainable economy is key to ensuring the long-term competitiveness and sustainability of the Union economy and the quality of life of citizens in the Union, and to keeping global warming well below the 1,5 degree Celsius threshold. Sustainability has long been at the heart of Union policies and both the Treaty on European Union and the Treaty on the Functioning of the European Union (TFEU) recognise its social and environmental dimensions.

(3)

Achieving the objectives of the SDGs in the Union requires the channelling of capital flows towards sustainable investments. It is necessary to fully exploit the potential of the internal market for the achievement of those objectives. In that context, it is crucial to remove obstacles to the efficient movement of capital towards sustainable investments in the internal market, to prevent such obstacles from emerging, and to set rules and standards to, on the one hand, promote sustainable finance and, on the other, disincentivise investments that can adversely impact the achievement of the objectives of the SDGs.

(4)

The Union’s approach to sustainable and inclusive growth is anchored in the 20 principles of the European Pillar of Social Rights, as laid down in the Commission’s Communication of 26 April 2017 entitled ‘Establishing a European Pillar of Social Rights’, which aim to ensure a fair transition towards such growth and to ensure policies which leave no one behind. Furthermore, the Union social acquis, including the Union of Equality Strategies, provides standards in the areas of labour law, equality, accessibility, health and safety at work, and anti-discrimination.

(5)

Financial markets play a crucial role in the channelling of capital towards investments that are necessary for the achievement of the Union climate and environmental objectives. In its communication of 8 March 2018, the Commission published its Action Plan on Financing Sustainable Growth, launching its strategy on sustainable finance. The objectives of that Action Plan are to mainstream sustainability factors into risk management and reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth.

(6)

As part of the Action Plan on Financing Sustainable Growth, in 2021 the Commission commissioned a study entitled ‘Study on Sustainability-Related Ratings, Data and Research’ to take stock of the developments in the sustainability-related products and services market, identify the main market participants and highlight potential shortcomings. That study provided an inventory and classification of market actors, sustainability products and services available in the market and an analysis of the use and perceived quality of sustainability-related products and services by market participants. The study highlighted the existence of conflicts of interest, the lack of transparency and accuracy of environmental, social and governance (ESG) ratings methodologies and the lack of clarity over the terminology and the operations of ESG rating providers.

(7)

In the framework of the European Green Deal, the Commission put forward an updated sustainable finance strategy, which was adopted in its communication of 6 July 2021 entitled ‘Strategy for Financing the Transition to a Sustainable Economy’.

(8)

As a follow-up, the Commission announced in that strategy a public consultation on ESG ratings to feed into an impact assessment. In the public consultation that took place in 2022, stakeholders confirmed concerns regarding the lack of transparency of ESG rating methodologies and objectives and clarity over ESG rating activities. As trust is pivotal in the functioning of financial markets, such lack of transparency and reliability of ESG ratings should be urgently addressed.

(9)

At international level, the International Organization of Securities Commissions (IOSCO) issued a report in November 2021 containing a set of recommendations on ESG ratings and data product providers. The Commission and the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (4) should consider the application of those IOSCO recommendations when assessing the compliance of a third-country jurisdiction or ESG rating provider with the requirements of this Regulation for the purpose of equivalence, endorsement or recognition.

(10)

ESG ratings play an important role in global capital markets, as investors, borrowers and issuers increasingly use ESG ratings as part of the process of making informed decisions relating to sustainable investment and financing. Credit institutions, investment firms, insurance undertakings, assurance undertakings and reinsurance undertakings, amongst others, often use ESG ratings as a reference for the sustainability performance or the sustainability risks and opportunities in their investment activity. Consequently, ESG ratings have a significant impact on the operation of markets and on the trust and confidence of investors and consumers. To ensure that ESG ratings used in the Union are independent, comparable where possible, impartial, systematic and of adequate quality, it is important that ESG rating activities are conducted in accordance with the principles of integrity, transparency, responsibility and good governance, while contributing to the sustainable finance agenda of the Union. Better comparability and increased reliability of ESG ratings would enhance the efficiency of that fast-growing market, thereby facilitating progress towards the objectives of the European Green Deal.

(11)

ESG ratings play an enabling role for the proper functioning of the Union sustainable finance market by providing investors and financial institutions with important information for their investment strategies, risk management and disclosure obligations. It is therefore necessary to ensure that ESG ratings provide material decision-useful information to users of ESG ratings, and that users of ESG ratings better understand the objectives pursued by ESG ratings and the specific issues and metrics measured by such ratings.

(12)

It is necessary to acknowledge the various business models of the ESG rating market. A first business model is the user-paid model, where users of ESG ratings are mainly investors that purchase ESG ratings for the purpose of making investment decisions. A second business model is the issuer-paid model, where undertakings purchase ESG ratings for the purpose of assessing risks and opportunities within their operations. In order to ensure greater reliability of ESG ratings provided in the Union, rated items or, in the case of a financial instrument or a financial product, issuers of rated items should have the possibility of verifying the data used by an ESG rating provider and of highlighting any factual errors in the dataset used that could potentially impact the quality of future ratings. To that end, a rated item or an issuer of a rated item should be able to access, upon request, the dataset used to issue the ESG rating. The possibility of verifying that dataset should be a pure fact-checking tool and rated items or issuers of rated items should under no circumstances be able to influence in any manner the rating methodologies or rating outcome. The requirement for an ESG rating provider to notify the rated item or the issuer of a rated item before the issuance of the ESG rating should only apply before the first issuance of the rating and not to any following updates. That requirement serves as a means to inform the rated item or the issuer of a rated item that it is going to be rated by the ESG rating provider.

(13)

Member States neither regulate nor supervise the activities of ESG rating providers or the conditions for the provision of ESG ratings. Given the existing divergences, lack of transparency and absence of common rules, it is likely that Member States would adopt diverging measures and approaches impeding alignment with the objectives of the SDGs and the European Green Deal. Those diverging measures and approaches would have a direct negative impact on, and create obstacles to, the proper functioning of the internal market and be detrimental to the ESG rating market. ESG rating providers issuing ESG ratings for the use of financial institutions and undertakings in the Union would be subject to different rules in different Member States. Divergent standards and market practices would make it difficult to have clarity over the construction of ESG ratings and to compare them, thus creating uneven market conditions for users of ESG ratings. That would cause additional barriers within the internal market and would risk distorting investment decisions.

(14)

This Regulation complements existing Union legal acts in the field of sustainable finance and aims to facilitate information flows in order to facilitate investment decisions.

(15)

In order to adequately define the territorial scope, this Regulation should be based on the concept of ‘operating in the Union’, distinguishing between, on the one hand, cases where ESG rating providers are established in the Union and, on the other, cases where ESG rating providers are established outside the Union. In the first case, ESG rating providers established in the Union should be considered to be operating in the Union when they issue and publish their ESG ratings on their website or through other means, or when they issue and distribute their ESG ratings by subscription or other contractual relationships to regulated financial undertakings in the Union, to undertakings within the scope of Directive 2013/34/EU of the European Parliament and of the Council (5), to undertakings within the scope of Directive 2004/109/EC of the European Parliament and of the Council (6), in particular with respect to third-country issuers whose securities are admitted to trading on Union regulated markets, or to Union institutions, bodies, offices and agencies or Member State public authorities. In the second case, ESG rating providers established outside the Union should only be considered to be operating in the Union when they issue and distribute their ESG ratings by subscription or other contractual relationships to the same entities as ESG rating providers established in the Union.

(16)

This Regulation is designed to govern the issuance, distribution and, where relevant, publication of ESG ratings, without being intended to regulate their use. Given that the territorial scope of this Regulation is tied to the concept of ‘operating in the Union’, users of ESG ratings should engage with ESG rating providers that are authorised or registered under this Regulation. Nevertheless, in limited cases, a user of ESG ratings in the Union should be able to engage with an ESG rating provider established outside the Union and not authorised or recognised under this Regulation. Such cases should strictly adhere to specific conditions to avoid any risk of circumvention of the requirements of this Regulation.

(17)

To adequately define the range of products to which this Regulation applies, the definition of ESG rating should be limited to opinions or scores, or a combination thereof, that are based on both an established methodology and a defined ranking system such as rating categories. For instance, the assignment of an item to a category or a scale that is either positive or negative, based on an established methodology with regard to environmental, social and human rights, or governance factors or with regard to exposure to risks, should be considered a ranking system for the purposes of this Regulation.

(18)

This Regulation should not apply to the publication or distribution of data on environmental, social and human rights, and governance factors that do not result in the development of an ESG rating. Moreover, this Regulation should not apply to products or services that incorporate an element of an ESG rating, including investment research as laid down in Directive 2014/65/EU of the European Parliament and of the Council (7). External reviews of European Green Bonds, as provided for in Regulation (EU) 2023/2631 of the European Parliament and of the Council (8), and external reviews and second-party opinions on bonds marketed as environmentally sustainable, sustainability-linked bonds, and bonds, loans and other types of debt instruments marketed as sustainable, should also fall outside the scope of this Regulation to the extent that such external reviews and second-party opinions do not contain ESG ratings issued by the external reviewer or the second-party opinion provider. External reviews include reviews of pre-issuance disclosures, such as European Green Bond factsheets or frameworks of bonds marketed as sustainable, as well as reviews of post-issuance disclosures, such as European Green Bond annual allocation reports, European Green Bond impact reports and reports on bonds marketed as sustainable. Furthermore, this Regulation should not apply to ratings developed exclusively for accreditation or certification processes, as such ratings do not target investment analysis, financial analysis, investment decision-making or financial decision-making. Lastly, this Regulation should not apply to ESG labelling activities provided that the labels granted to entities, financial instruments or products do not involve the disclosure of an ESG rating.

(19)

In addition, this Regulation should not apply to ratings issued by members of the European System of Central Banks (ESCB) when such ratings are not published or distributed for commercial purposes. That limitation in scope is to ensure that this Regulation does not unintentionally have an impact on measures of the ESCB that seek to take climate or other environmental, social and governance considerations into account in the ESCB’s monetary policy collateral framework when the ESCB is pursuing the primary objective of maintaining price stability and, without prejudice to that objective, supporting the general economic policies in the Union.

(20)

Where an undertaking or financial institution discloses information about its own sustainability impacts, risks and opportunities, or those of its value chain, such information should not be considered an ESG rating under this Regulation.

(21)

This Regulation should not apply to private ESG ratings issued pursuant to an individual order and provided exclusively to the person who placed the order and which are not intended for public disclosure or for distribution by subscription or other means. Nor should this Regulation apply to ESG ratings issued by regulated financial undertakings in the Union that are used exclusively for internal purposes or for providing in-house or intragroup financial services or products.

(22)

In order to further enhance the functioning of the internal market and the level of investor protection, it is important to ensure sufficient and consistent transparency of ESG ratings issued by regulated financial undertakings in the Union and incorporated in their financial products or services when such ratings are disclosed and are therefore visible to third parties. Investors should receive adequate information about the methodologies underlying the ESG ratings, which should be disclosed in the marketing communications. Therefore, this Regulation should also complement the disclosure obligations related to marketing communications established by Regulation (EU) 2019/2088 of the European Parliament and of the Council (9). The same information should also be required from any other regulated financial undertaking in the Union that discloses an ESG rating issued by that regulated financial undertaking to a third party as part of its marketing communications, except where it is subject to Regulation (EU) 2019/2088. Investors should receive, via a link to the disclosures on the website of the regulated financial undertaking in the Union, the same information as that required from an ESG rating provider pursuant to point 1 of Annex III of this Regulation, while taking into account the content of any information already disclosed by financial market participants and financial advisors pursuant to Regulation (EU) 2019/2088. Other regulated financial undertakings in the Union should disclose the same information, taking into account the various types of financial products, their characteristics and the differences between them, as well as the need to avoid any duplication of information already published pursuant to other applicable regulatory requirements. In general, any duplication of applicable disclosure requirements should be avoided. With that same objective, regulated financial undertakings in the Union that issue ESG ratings and incorporate those ratings in the financial products or services that they offer to third parties should be excluded from the scope of this Regulation.

(23)

Non-profit organisations that issue ESG ratings for non-commercial purposes and that publish those ratings free of charge should not be deemed to fall within the scope of this Regulation. However, they should endeavour to integrate the transparency requirements laid down in this Regulation where applicable. Where non-profit organisations charge rated items and issuers of rated items to report data or to get rated through their platform, or where they charge users of ESG ratings to access any information on ESG ratings, they should be subject to the requirements of this Regulation.

(24)

Natural persons, including academics and journalists, who publish and distribute ESG ratings for non-commercial purposes should not fall within the scope of this Regulation.

(25)

To assess the ESG profile of companies, and as part of their sustainable investment and financing decision-making processes, credit institutions, investment firms, insurance undertakings and reinsurance undertakings, amongst others, rely both on external ESG ratings and on external ESG data products. Financial institutions should bear responsibility in the event of greenwashing accusations concerning their financial products, while the sole distribution of ESG information on entities or financial products, relying on proprietary or established methodology, which includes, among others, datasets on emissions and data on ESG controversies, should not be covered by this Regulation. The Commission should carry out a review of this Regulation to assess whether the scope identified is sufficient to ensure the confidence of investors and consumers in the sustainability performance of financial products and services. The Commission should envisage, where needed, broadening the set of ESG data products and ESG data product providers covered by this Regulation.

(26)

It is important to lay down rules ensuring that ESG ratings provided by ESG rating providers authorised in the Union are of adequate quality, are subject to appropriate requirements that recognise the existence of different business models, and ensure market integrity. Those rules would apply to overall ESG ratings capturing environmental, social and governance factors, and to ratings that only assess a single environmental, social or governance factor or a sub-component of such a factor. Separate environmental (E), social (S) and governance (G) ratings should be provided rather than a single ESG rating that aggregates E, S and G factors. If ESG rating providers decide to provide aggregated ratings, they should disclose the rate and weight granted to each E, S and G category and present that information in a manner that ensures that each of those categories can be compared with the others.

(27)

Given the use of ESG ratings from providers established outside the Union, and in order to ensure market integrity, investor protection and proper enforcement of this Regulation, it is necessary to introduce requirements based on which ESG rating providers established outside the Union may offer their services in the Union. Therefore, three possible regimes are proposed for ESG rating providers established outside the Union: equivalence, endorsement and recognition. As a rule, supervision and regulation in a third country should be equivalent to Union supervision and regulation of ESG ratings. Therefore, ESG ratings provided by an ESG rating provider established outside the Union and authorised or registered as such in a third country should only be offered in the Union where a positive decision on equivalence of the third-country regime has been taken by the Commission. However, to avoid any adverse impact resulting from a possible abrupt cessation of the offering in the Union of ESG ratings provided by an ESG rating provider established outside the Union, it is necessary to provide for certain other regimes, namely of endorsement and recognition. Any ESG rating provider with a group structure should be able to use the endorsement regime for ESG ratings developed outside the Union. To do so, it should establish, within the group structure, an authorised ESG rating provider in the Union. That authorised ESG rating provider should ensure that the issuance and distribution of endorsed ESG ratings fulfils requirements which are at least as stringent as the requirements of this Regulation. Additionally, the ESG rating provider established in the Union should possess the necessary expertise to effectively monitor the issuance and distribution of ESG ratings provided by the ESG rating provider established outside the Union and there should be an objective reason why the endorsed ratings are issued by a provider established outside the Union. The requirement to demonstrate compliance with this Regulation should not be proven for each individual endorsed ESG rating but rather for the overall methodologies and procedures implemented by the ESG rating provider. For their part, ESG rating providers that are categorised as small undertakings or small groups according to the criteria laid down in Directive 2013/34/EU (‘small ESG rating providers’) should be able to benefit from the recognition regime. Where an ESG provider established outside the Union is subject to supervision in a third country, appropriate cooperation arrangements should be put in place in order to ensure an efficient exchange of information with the relevant third-country competent authority.

(28)

The notion of establishment extends to any real and effective activity exercised through stable arrangements. When determining whether an entity based outside the Union has an establishment in a Member State, it is pertinent to consider the degree of stability of those arrangements, the effective exercise of activities in the Union, and the specific nature of the economic activities and services provided.

(29)

The Union represents one of the main markets for ESG ratings. It is also one of the first jurisdictions to regulate the transparency and integrity of ESG ratings. The Commission should continue to work with international partners to foster convergence of the rules applying to ESG rating providers.

(30)

To ensure a high level of investor and consumer confidence in the internal market, ESG rating providers which provide ESG ratings in the Union should be required to be authorised. It is therefore necessary to lay down harmonised conditions for such authorisation and the procedure for granting or refusing and suspending or withdrawing such authorisation. Authorised ESG rating providers should notify ESMA of any material changes to the conditions for their initial authorisation without undue delay. Material changes include any opening or closing of a branch within the Union. In order to provide more clarity to ESG rating providers, ESMA should specify what constitutes a material change by issuing guidelines to that effect.

(31)

To ensure a high level of information to investors and other users of ESG ratings, information on ESG ratings and ESG rating providers should be made available on the European single access point (ESAP) established by Regulation (EU) 2023/2859 of the European Parliament and of the Council (10).

(32)

To ensure the quality and reliability of ESG ratings, ESG rating providers should use rating methodologies that are rigorous, systematic, independent, continuous and capable of justification and that apply continuously and in a transparent manner. ESG rating providers should be encouraged to address both aspects of the double materiality principle. ESG rating providers should review ESG rating methodologies on an ongoing basis and at least annually, taking into account Union and international developments affecting the E, S or G factors. However, it is important to leave it to the ESG rating providers themselves to determine their own methodologies in accordance with those principles.

(33)

ESG rating providers should disclose information to the public on the methodologies, models and key rating assumptions which those providers use in their ESG rating activities and in each of their ESG rating products. In light of the uses of ESG ratings by investors, rating products should clearly disclose which dimension of the double materiality principle the rating addresses, namely, whether it is both the material financial risk to the rated item or the issuer of the rated item and the material impact of the rated item or the issuer of the rated item on the environment and society in general, or whether it addresses only one of those matters. ESG rating providers should also clearly disclose whether the rating addresses other dimensions. For the same reason, ESG rating providers should provide more detailed information on the methodologies, models and key rating assumptions to users of ESG ratings. That information should enable users of ESG ratings to perform their own due diligence when assessing whether to rely on those ESG ratings. Disclosure of information concerning methodologies, models and key rating assumptions should however not reveal sensitive business information or impede innovation. ESG rating providers should also disclose whether they have taken into account E, S or G factors, or an aggregation thereof, the rating given to each relevant factor, and the weighting each of those factors is given in the aggregation. ESG rating providers should also disclose the limitations of the information available to them and the limitations of the methodology used, such as when they assess only one of the two dimensions of the double materiality principle or when the ESG rating is expressed in absolute or relative value. They should also disclose information about any possible engagement with stakeholders of the rated item or issuer of the rated item.

(34)

To ensure a sufficient level of quality, it is recommended that ESG ratings take into account Union objectives and international standards for each factor. As such, ESG rating providers should provide information on whether the ESG rating takes into account, amongst others, the targets and objectives of relevant international agreements, including those of the Paris Agreement adopted under the United Nations Framework Convention on Climate Change (the ‘Paris Agreement’) approved by the Union on 5 October 2016 (11) for the E factor, compliance with the International Labour Organisation’s core conventions on the right to organise and collective bargaining for the S factor, and alignment with international standards on tax evasion and avoidance for the G factor.

(35)

Regulation (EU) 2019/2088, Regulation (EU) 2020/852 of the European Parliament and of the Council (12) and Directive (EU) 2022/2464 of the European Parliament and of the Council (13) represent landmark legislative initiatives to enhance the availability, quality and consistency of ESG requirements across the entire value chain of financial market participants, which contribute to improving the quality of ESG ratings.

(36)

This Regulation should not interfere with ESG rating methodologies or the content of ESG ratings. Diversity in the methodologies of ESG rating providers ensures that the broad requirements of users of ESG ratings can be met and promotes competition in the market.

(37)

Whilst an ESG rating provider should be permitted to use alignment with the taxonomy set out in Regulation (EU) 2020/852 as a relevant factor or key performance indicator in its rating methodology, ESG ratings within the scope of this Regulation should not be considered ESG labels indicating or providing assurances of compliance or alignment with Regulation (EU) 2020/852 or with any other standards.

(38)

ESG rating providers should ensure that they provide ESG ratings that are independent, impartial, systematic and of adequate quality. It is important to introduce organisational requirements ensuring the prevention and mitigation of potential conflicts of interest. To ensure their independence, ESG rating providers should avoid situations of conflict of interest and manage such conflicts adequately where they are unavoidable. ESG rating providers should disclose conflicts of interest in a timely manner. They should also keep records of all significant threats to their independence and that of their employees and other persons involved in the rating process, and of the safeguards applied to mitigate those threats. In addition, to avoid potential conflicts of interest, ESG rating providers should not be allowed to offer from within the same entity a number of other activities including consulting services, credit ratings, benchmarks, investment activities, auditing, activities of credit institutions or insurance and reinsurance activities. Finally, to prevent, identify, eliminate or manage and disclose any conflicts of interest and ensure at all times the quality, integrity and thoroughness of the ESG rating and review process, ESG rating providers should establish appropriate internal policies and procedures in relation to employees and other persons involved in the rating process. Such policies and procedures should, in particular, include internal control mechanisms and an oversight function.

(39)

In order to address the risks of conflicts of interest, some activities should be offered from separate legal entities. However, some of those activities could be offered from within the same legal entity where the ESG rating provider concerned has sufficient measures and procedures in place to ensure that each activity is exercised autonomously and to avoid creating potential risks of conflicts of interest in decision-making within its ESG rating activities. Such derogation should not be possible for credit rating activities and for auditing and consulting activities. Consulting activities include developing sustainability strategies and strategies to manage sustainability risks or impacts. With respect to the activity of the provision of benchmarks, ESMA should assess whether the measures proposed by the ESG rating provider are appropriate and sufficient regarding the potential risks of conflict of interest. Such an assessment should take into account whether the benchmark administrator offers benchmarks that pursue sustainability objectives and in particular EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks in accordance with Regulation (EU) 2016/1011 of the European Parliament and of the Council (14).

(40)

ESG rating providers should ensure that their employees and other persons involved in the rating process do not participate in, or otherwise influence, the determination of an ESG rating of any rated item if there is any evidence of self-review, self-interest, advocacy or familiarity stemming from financial, personal, business, employment or other relationships between those persons and the rated item or the issuer of a rated item as a result of which an objective, reasonable and informed third party, taking into account the safeguards applied, would conclude that those persons’ independence is compromised. If, during the period in which employees of ESG rating providers or other persons involved in the rating process are part of the assessment activities, a rated item or an issuer of a rated item merges with, or acquires, another entity, those persons should identify and evaluate any current or recent interests or relationships which, taking into account available safeguards, could compromise those persons’ independence and ability to continue being involved in the assessment activities after the effective date of the merger or acquisition.

(41)

To bring more clarity to, and enhance trust regarding, the operations of ESG rating providers, it is necessary to lay down requirements for the ongoing supervision of ESG rating providers in the Union. In light of the significant similarities between the activities of credit rating agencies and those of ESG rating providers, the related close alignment of central aspects of the regulatory framework for ESG rating providers to the regulatory framework for credit rating agencies under Regulation (EC) No 1060/2009 of the European Parliament and of the Council (15), and in order to ensure a harmonised application of this Regulation as well as uniform supervision, it is deemed advisable, considering the decision taken under Regulation (EC) No 1060/2009 to entrust supervision to ESMA, to entrust the supervision of ESG rating providers to ESMA. The fact that this Regulation entrusts supervision to ESMA does not constitute a precedent and should not be interpreted as establishing a practice or policy on the attribution of supervisory responsibilities in the financial services sector.

(42)

Aside from their use in the financial services sector, ESG ratings are also used in the procurement and supply chain context. Therefore, in its supervision of ESG rating providers, ESMA should take account of the distinction between ESG rating providers in financial services sectors and those in non-financial services sectors.

(43)

ESMA should be able to require all information necessary to carry out its supervisory tasks effectively. It should therefore be able to demand such information from ESG rating providers, persons involved in ESG rating activities, rated items and issuers of rated items, third parties to whom ESG rating providers have outsourced operational functions or activities, persons otherwise closely and substantially related or connected to ESG rating providers or ESG rating activities, and legal representatives designated under the recognition regime.

(44)

ESMA should be able to perform its supervisory tasks, and in particular to compel ESG rating providers to bring an end to an infringement, to supply complete and correct information, or to submit to an investigation or an on-site inspection. To ensure that it is able to perform those supervisory tasks, ESMA should be able to impose fines and periodic penalty payments.

(45)

Given its role as the Union authority that authorises and supervises ESG rating providers, ESMA should develop draft regulatory technical standards and submit them to the Commission. ESMA should specify further the information needed for the authorisation of ESG rating providers. The Commission should be empowered to adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

(46)

When authorising and supervising ESG rating providers, ESMA should be able to charge supervised entities supervisory fees. Such fees should be proportionate and appropriate to the size of the ESG rating providers and to the extent of their supervision.

(47)

In order to specify further technical elements of this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the specifications of the procedure to impose fines or periodic penalty payments, including provisions on rights of defence, temporal provisions, provisions on the collection of fines or periodic penalty payments, and detailed rules on the limitation periods for the imposition and enforcement of fines or periodic penalty payments, and in respect of the type of fees, the matters for which fees are due, the amount of the fees, and the manner in which those fees are to be paid. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (16). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(48)

It is necessary to have in place a number of measures supporting small ESG rating providers to enable them to continue their activities, or to enter the market after the date of application of this Regulation. Against that background, a temporary regime should be introduced to facilitate the market entry of small ESG rating providers and support the development of existing small ESG rating providers already operating in the Union before the entry into force of this Regulation. Under that temporary regime, small ESG rating providers should register with ESMA, without the need to obtain authorisation to operate in the Union, and should only be subject to the provisions of this Regulation regarding organisational and transparency requirements. ESMA should be empowered to request information and to conduct general investigations and on-site inspections, as well as to adopt administrative measures. ESMA should ensure that risks of circumvention of this Regulation are avoided, particularly by preventing small undertakings within medium-sized or large groups according to the criteria laid down in Directive 2013/34/EU from benefitting from the temporary regime. Once the temporary regime comes to an end, small ESG rating providers should apply for authorisation to operate in the Union and benefit from proportionate governance requirements and supervisory fees proportionate to the annual net turnover of the ESG rating provider concerned.

(49)

Where an item, issuer of an item or an investor seeks an ESG rating from at least two ESG rating providers, it may consider appointing at least one ESG rating provider with a market share for ESG rating activities of no more than 10 % in the Union.

(50)

Since the objective of this Regulation, namely, to lay down a consistent and effective regime to address the shortcomings and vulnerabilities posed by ESG ratings, cannot be sufficiently achieved by the Member States but can rather, by reasons of the scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(51)

This Regulation applies without prejudice to the application of Articles 101 and 102 TFEU.

(52)

The European Central Bank delivered its own initiative opinion on 4 October 2023,