Changes from report parliamentary committee draft to plenary report

AddedIt shall apply from ... [9 months from the entry into force of this Regulation].

AddedThis Regulation shall be binding in its entirety and directly applicable in all Member States.

AddedDone at Brussels,

AddedFor the European Parliament For the Council

AddedThe President The President

AddedAn application for authorisation shall contain all of the following information :

Added(a) the full name of the applicant, the address of the registered office within the Union, the applicant’s website and, where available, the legal entity identifier (LEI);

Added(b) the name and contact details of a contact person;

Added(c) the legal status of the applicant;

Added(d) the ownership structure of the applicant at group level;

Added(da) the identity of entities within the ownership structure that would provide ESG rating activities or any other services listed in Article 15(1) that create risks of conflicts of interest within the ESG rating activities to be provided by the applicant;

Added(e) the identity of the members of the senior management of the applicant and their level of qualification, experience and training;

Added(f) the number of the analysts, employees and other persons directly involved in assessment activities with the purpose of providing ESG ratings, and their level of experience and training working for the applicant and their level of experience and training;

Added(fa) the number of entities, financial products and instruments for which the applicant will provide ESG ratings;

Added(g) a detailed description of the procedures and methodologies used to issue and review ESG ratings implemented by the applicant; if ESG rating providers choose to use common data points disclosed under Regulation (EU) 2019/2088, including principal adverse impacts (PAIs) under the delegated act adopted pursuant to Article X of Regulation 2019/2088, or under Directive (EU) 2022/2464, including delegated acts adopted pursuant to Directive 2013/34/EU, they shall include a demonstration of how those common data points are used;

Added(ga) if ESG ratings providers use methodologies that are considered as being based on scientific evidence, information on how they use such scientific evidence, including whether and how they are in line with the Paris Agreement;

Added(gb) a description of data processes including data sources, estimation of input data in case of unavailability, frequency of data updates and data quality controls;

Added(h) the policies or procedures implemented by the applicant to identify, manage and disclose any conflicts of interests as referred to in Article 14 of the Regulation;

Added(i) where applicable, documents and information related to any existing or planned outsourcing arrangements for activities covered by this Regulation;

Added(j) where applicable, information about other activities carried out by the applicant, or which the applicant intends to provide;

Added(ja) where applicable, a list of the ESG ratings that the applicant expects to endorse;

Added(jb) where applicable, existing track records of ESG rating activities.

Added1. Record Keeping information

AddedESG rating providers shall keep records of all of the following:

Added(a) for each ESG rating, where applicable:

Added(1) the identity of the rating analysts participating in the determination of the ESG rating, the identity of the persons who have approved the ESG rating, information as to whether the ESG rating was solicited or unsolicited, and the date on which the ESG rating action was taken;

Added(2) the identity of the persons responsible for the development of the rule-based methodology, and the identity of the persons who have approved the rating methodology;

Added▐(c) the account records relating to fees received from any rated entity or related third party or any user of ratings;

Added(d) the account records for each subscriber to the ESG ratings;

Added(e) the records documenting the established procedures and rating methodologies used by the ESG rating provider to determine ESG ratings;

Added(f) the internal records and external communications and files, including non-public information and work papers, used to form the basis of any ESG rating decision taken;

Added(g) records of the procedures and measures implemented by the ESG rating provider to comply with this Regulation;

Added(h) the methodology used for the determination of an ESG rating;

Added(i) changes in or deviations from standard procedures and methodologies;

Added(j) all documents relating to any complaint, including those submitted by a complainant.

Added2. Outsourcing

AddedWhere ESG rating providers outsource to a service provider functions or any relevant services or activities in the provision of an ESG rating, the ESG rating provider shall ensure that the following conditions are met:

Added(a) the service provider has the ability, capacity, and any authorisation required by law, to perform the outsourced functions, services or activities reliably and professionally;

Added(b) the ESG rating provider takes appropriate action if it appears that the service provider may not be carrying out the outsourced functions effectively and in compliance with applicable law and regulatory requirements;

Added(c) the ESG rating provider retains the necessary expertise to supervise the outsourced functions effectively and to manage the risks associated with the outsourcing;

Added(d) the service provider discloses to the ESG rating provider any development that may have a material impact on its ability to carry out the outsourced functions effectively and in compliance with applicable law and regulatory requirements;

Added(e) the ESG rating provider is able to terminate the outsourcing arrangements where necessary;

Added(f) the ESG rating provider takes reasonable steps, including contingency plans, to avoid undue operational risk related to the participation of the service provider in the ESG rating determination process.

Added1. Minimum disclosures to the public

AddedIn accordance with Article 21 of the Regulation, ESG rating providers shall, at the minimum, disclose to the public on their website and through the European Single Access Point (ESAP) the following:

Added(a) high level overview of the rating methodologies used (and changes thereto), including: (1) whether analysis is backward-looking or forward-looking and the time horizon covered; and

Added(2) whether the analysis looks at potential material financial risk to the rated entity, or potential material impact of the rated entity on the environment and on society in general, or both, the weighting of the two factors;

Added(aa) the industry classification used and why such classification is relevant;

Added(b) data sources including whether data is sourced from information disclosed under Directive 2013/34/EU and Regulation (EU) 2019/2088 and whether sources are public or non-public and a high level overview of data processes with data sources, including ▐if they are sourced from sustainability statements required by Directive (EU) 2022/2464, estimation of input data in case of unavailability, frequency of data updates;

Added(c) information on whether and how the methodologies are based on scientific evidence;

Added(d) where the ESG rating assesses only financial materiality, a clear warning about the limitations of the methodology and the conclusions that can be drawn from that rating;

Added(e) the rating’s scope – i.e., whether it covers a specific factor (E, S, or G) or ▐specific issues (e.g., transition risks);

Added(f) in the case of an aggregated ESG rating, weighting of the three overarching ESG factors categories (e.g., 33% Environment, 33% Social, 33% Governance), and the explanation of the weighting method, including weight per individual E, S and G factors;

Added(g) within the E, S or G factors, specification of the topics covered by the ESG rating/score, and whether they correspond to the topics from the sustainability reporting standards developed pursuant to Article 29b of Directive 2013/34/EU;

Added(h) information on whether the rating is expressed in absolute or relative values, and if the ESG rating is expressed in relative value, a clear warning about the limitations of the methodology and the conclusions that can be drawn from that rating;

Added(i) where applicable, reference to the use of Artificial Intelligence (AI) in the data collection or rating/scoring process including information about current limitations or risks of those tools;

Added(j) general information on criteria used for establishing fees to clients, specifying the various elements taken into consideration, such as the involvement of data analysts, IT equipment, purchasing data;

Added(k) data sources used and any limitation in relation to them for the construction of ESG ratings;

Added(ka) in sufficient detail taking into account the nature of any conflicts of interest that arise, the general nature or sources of conflicts of interest and the steps taken to mitigate those risks;

Added(kb) if an ESG rating provider chooses to include in its ESG rating KPIs covering the E factor, information on whether that rating considers the alignment of the business model and strategy of the company with the objectives of the transition to a sustainable economy and with the limiting of global warming, in line with the Paris Agreement;