In a major step toward strengthening oversight and transparency in the fast-growing environmental, social, and governance (ESG) ratings market, the European Securities and Markets Authority (ESMA) has today published a Consultation Paper outlining draft Regulatory Technical Standards (RTS) under the newly established ESG Rating Regulation.
The initiative marks a critical component of the European Union’s broader sustainable finance strategy, aimed at ensuring that ESG-related financial products and services are reliable, comparable, and free from greenwashing. As demand for ESG data surges among institutional investors and corporate issuers, concerns have mounted over inconsistent methodologies, lack of transparency, and potential conflicts of interest within ESG rating agencies.
What’s in the Draft RTS?
The consultation paper sets out detailed requirements across three key areas affecting ESG rating providers:
- Authorisation and Recognition Applications :
The draft standards specify the information ESG rating providers must submit when applying for authorisation or recognition by national competent authorities. This includes details about their organisational structure, governance arrangements, and internal processes for producing ESG ratings. - Conflict-of-Interest Safeguards :
Given that many ESG rating providers also offer consulting or advisory services, ESMA proposes robust safeguards to mitigate potential conflicts of interest. These include structural separation requirements, internal information barriers, and restrictions on certain cross-selling activities. - Public and Stakeholder Disclosure Requirements :
Under the proposed rules, ESG rating providers would be required to disclose extensive information to the public, including methodologies used, key assumptions, and historical performance of ratings. Additionally, they must provide specific disclosures to rated entities and users of ESG ratings, enabling greater scrutiny and comparability.
Why It Matters
“The ESG ratings industry has grown rapidly with little regulatory oversight,” said an ESMA spokesperson. “This consultation is a crucial step in ensuring that these providers operate transparently, consistently, and independently—giving investors and regulators the confidence they need to rely on ESG data.”
With no unified standards currently governing how ESG ratings are calculated or disclosed, different providers often assign widely divergent scores to the same company. Critics argue this undermines investor trust and creates opportunities for manipulation. The new rules aim to address these concerns head-on.
Industry Response and Next Steps
ESMA is calling on all stakeholders—including prospective ESG rating providers, asset managers, institutional investors, and corporate issuers—to contribute feedback by 20 June 2025 . The authority plans to finalise the RTS and submit them to the European Commission for adoption in October 2025 .
Industry observers expect the consultation to spark significant debate, particularly around the operational feasibility of conflict-of-interest mitigation measures and the extent of mandatory disclosures.
“This is a pivotal moment for ESG ratings,” said Sofia Alvarez, a sustainable finance analyst at a leading EU think tank. “If implemented effectively, these rules could set a global benchmark for accountability in sustainability data.”
Background
The ESG Rating Regulation was adopted by the EU earlier this year as part of its commitment to creating a more resilient and transparent sustainable finance ecosystem. The regulation will apply directly across all EU member states and is expected to come into force in early 2026.
Further information, including the full Consultation Paper and submission guidelines for feedback, can be found on ESMA’s website. Comments and media inquiries should be directed to Dan Nacu-Manole, ESMA Communications Officer, at press@esma.europa.eu .
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