Thursday, 16 October 2025
The European Securities and Markets Authority (ESMA) has published its final draft technical standards for the forthcoming ESG Ratings Regulation, marking an important step toward the EU’s goal of bringing consistency and accountability to how environmental, social and governance ratings are produced and used across financial markets.
The regulation, due to apply from 2 July 2026, introduces a formal authorisation regime for ESG rating providers and sets common rules on transparency, governance, and the management of conflicts of interest. ESMA’s final text reflects extensive consultation with industry stakeholders and introduces several refinements designed to make compliance more practical while maintaining a high standard of oversight.
Under the final standards, firms will continue to be required to disclose their ownership structures, internal governance, and conflict-management frameworks. ESMA has nonetheless adjusted the level of detail demanded, focusing on relationships between parent companies and subsidiaries rather than every associated entity within a corporate group. To demonstrate managerial integrity, providers must still confirm that key personnel are of good repute, but the scope of evidence has been narrowed to specific financial and professional offences, and self-declarations remain acceptable when formal documentation cannot be obtained.
The authority has also softened aspects of its earlier proposals on staffing and organisational structure. Instead of listing each analyst involved in producing ratings, companies may now provide aggregated information describing team size, experience, and professional qualifications. The requirement to separate business and analytical functions remains, but ESMA now allows this to be achieved through flexible internal controls—such as access restrictions and data-protection measures—rather than prescribing physical or IT segregation.
In terms of disclosure, ESG rating providers will need to follow a harmonised reporting format when publishing key information about their methodologies, yet the presentation allows a degree of flexibility. The new templates are designed to improve comparability across the market while avoiding unnecessary administrative complexity. Providers must still outline their data sources, assumptions, and procedures for revising methodologies, ensuring transparency for users of ESG ratings but without the excessive detail initially proposed in earlier drafts.
Financial institutions and benchmark administrators that rely on ESG ratings are now reviewing their governance systems in preparation for the new regime. Legal and compliance specialists expect that firms will need to update conflict-of-interest policies, strengthen internal barriers between analytical and commercial operations, and prepare for greater scrutiny of the data and models that underpin their ratings. Although ESMA’s final version eases some obligations, the regulation is still regarded as one of the more demanding components of the EU’s sustainable-finance agenda, particularly for smaller ratings firms.
Once the European Commission endorses the technical standards, they will be submitted to the European Parliament and the Council for formal approval. With the July 2026 start date approaching, ESG rating providers across Europe are entering a decisive phase of implementation. The regulation marks a milestone in the EU’s efforts to bring structure and credibility to a sector that has become increasingly influential in shaping sustainable investment decisions.
Source: CMS
