Saturday, 18 October 2025
The European Securities and Markets Authority (ESMA) has finalised the detailed rulebook that will shape how companies providing ESG ratings operate in the EU. The new standards, approved on 15 October, simplify earlier proposals but keep firm expectations around transparency, independence, and governance. They will take effect on 2 July 2026, once endorsed by the European Commission and reviewed by the European Parliament and Council.
The framework forms part of the EU’s wider effort to make environmental, social and governance (ESG) ratings more consistent and credible, amid growing investor reliance on such scores to steer sustainable investment decisions.
Following months of industry feedback, ESMA eased some of the most demanding aspects of the draft rules. The regulator scaled back the amount of information companies must submit when applying for authorisation, limited ownership mapping to parent companies and subsidiaries, and replaced detailed personal data requests with broader team-level information.
In another shift, companies will no longer need to provide complex data models or assumptions during the approval process—only a clear explanation of their methodologies. The same proportional approach applies to firms outside the EU seeking recognition, who will now submit simpler lists of the ratings they plan to distribute in the bloc.
ESMA kept its focus on avoiding conflicts of interest between ESG rating work and other business activities. However, the regulator dropped prescriptive requirements such as separate office space or access systems, choosing instead to allow flexibility as long as independence can be demonstrated.
Firms will be expected to have robust internal controls, including restricted data access, conflict-of-interest declarations renewed each year, and periodic assessments of how effectively safeguards are working. These measures aim to ensure ratings remain objective even when produced within larger, diversified organisations.
On public transparency, ESMA has opted for a simpler format. Companies will still need to publish information about their methodologies and governance, but they can now use cross-references or links to other documents instead of repeating data.
The final standards drop the earlier proposal requiring firms to name every rated company, focusing instead on how methodologies are applied and updated. Providers will also have to explain how they gather and verify input from rated entities, use scientific evidence, and account for both risk and impact considerations. Clear rules will now define what qualifies as a “material change” in a methodology, helping investors understand how and when ratings evolve.
For ESG rating providers, the revised standards represent a more manageable compliance effort, though still one requiring careful preparation. Firms operating within large financial groups will need to revisit how they separate ESG rating activities from other functions such as research or investment management.
Financial institutions and investors relying on these ratings can expect greater consistency and insight into how scores are formed. The focus on clear documentation, engagement, and independence is intended to make ESG ratings easier to interpret and more trustworthy across the EU.
The rulebook now moves to the European Commission for formal adoption, with application scheduled for mid-2026. It marks another milestone in Europe’s ongoing drive to bring accountability and transparency to sustainable finance—one that will likely influence global practices as other jurisdictions look to follow suit.
Source: CMS
