Changes from report parliamentary committee draft to plenary report

RemovedArticle 22 – paragraph 1: 1. ESG rating providers shall disclose, as a minimum, the information referred to in point 2 of Annex III to their subscribers and to the rated entities. Where ESG rating providers publicly disclose ESG ratings, they shall publicly disclose the underlying information referred to in point 2 of Annex III for those specific ratings.

Added(30) Since the objectives of this Regulation cannot be sufficiently achieved by the Member States, namely to lay down a consistent and effective regime to address the shortcomings and vulnerabilities that ESG ratings pose, 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 those objectives.

RemovedArticle 22 – paragraph 1 a (new): 1a. Where subscribers of ESG ratings or rated entities disclose or distribute the ESG ratings, they shall disclose the information referred to in point 2 of Annex III to the persons receiving the ESG ratings or provide a link to the website of the ESG rating providers where that information is available. / Where subscribers of ESG ratings or rated entities publicly disclose ESG ratings, the information referred to in point 2 of Annex III shall be made publicly available.

Added(31) This Regulation should apply without prejudice to the application of Aricles 101 and 102 TFEU,

RemovedArticle 22 – paragraph 2: 2. ESMA shall develop draft regulatory technical standards to specify further the elements that are to be disclosed in accordance with paragraph 1 and the presentation of information.

AddedHAVE ADOPTED THIS REGULATION

RemovedArticle 22 – paragraph 3 – subparagraph 1: ESMA shall submit those draft regulatory technical standards to the Commission by ... [6 months after the date of entry into force of this Regulation].

AddedSUBJECT MATTER, SCOPE AND DEFINITIONS

RemovedArticle 23 – paragraph 3 – subparagraph 1: Where there is a risk of a conflict of interest within an ESG rating provider due to the ownership structure, controlling interests, or activities of that ESG rating provider, of any entity owning or controlling the ESG rating provider, of an entity that is owned or controlled by the ESG rating provider, or of any the ESG rating provider’s affiliates, ESMA shall take action. ESMA shall require the ESG rating provider to take measures to mitigate that risk. Such measures may include the establishment of an independent oversight function representing stakeholders, including users of the ESG ratings, contributors to such ratings, trade unions, relevant civil society organisations and affected communities, in a balanced manner.

AddedSubject-matter

RemovedArticle 23 – paragraph 3 – subparagraph 1 a (new): A shareholder or a member of an ESG rating provider holding at least 5 % of either the capital or the voting rights in that ESG rating provider, or in a company which has the power to exercise control or a dominant influence over that ESG rating provider, shall be prohibited from doing any of the following: / (a) holding 5 % or more of the capital of any other ESG rating provider; / (b) having the right or the power to exercise 5 % or more of the voting rights in any other ESG rating provider; / (c) having the right or the power to appoint or remove members of the administrative or supervisory board of any other ESG rating provider; / (d) being a member of the administrative or supervisory board of any other ESG rating provider; / (e) exercising or having the power to exercise control or a dominant influence over any other ESG rating provider.

AddedThis Regulation introduces a common regulatory approach to enhance the integrity, transparency, comparability, responsibility, reliability, alignment with Union law, good governance, and independence of ESG rating activities, contributing to the transparency and quality of ESG ratings. It aims to contribute to the smooth functioning of the internal market, while achieving a high level of consumer and investor protection and preventing greenwashing or other types of misinformation, including social-washing, by introducing transparency and minimum requirements related to ESG ratings and rules on the organisation and conduct of ESG rating providers.

RemovedArticle 23 – paragraph 3 – subparagraph 2: Where there is a risk of a conflict of interest as referred to in the first subparagraph and it cannot be adequately managed through specific risk mitigation, ESMA shall require the ESG rating provider to cease the activities or relationships that create the conflict of interest, or shall require the ESG rating provider to cease providing the ESG ratings.

AddedScope

RemovedArticle 23 – paragraph 4: 4. ESG rating providers shall publicly disclose all existing or potential conflicts of interest, including conflicts of interest arising from the ownership or control of the ESG rating providers.

Added1. This Regulation applies to ESG ratings issued by ESG rating providers operating in the Union that are disclosed publicly or that are distributed to regulated financial undertakings in the Union, undertakings that fall under the scope of Directive 2013/34/EU of the European Parliament and of the Council, or Union or Member States public authorities.

RemovedArticle 45 – paragraph 2: 2. The power to adopt delegated acts shall be conferred on the Commission for a period of 5 years from ,,, [date of entry into force of this Regulation]. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of that period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period.

Added2. This Regulation does not apply to any of the following:

RemovedArticle 45 – paragraph 6: 6. A delegated act adopted pursuant to Articles 7, 33, 34 and 40 shall enter into force only if no objection has been expressed either by the European Parliament or by the Council within a period of 3 months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by [3 months] at the initiative of the European Parliament or of the Council.

Added(a) private ESG ratings which are not intended for public disclosure or for distribution;

RemovedArticle 46: deleted / (deleted) / (deleted)

Added(b) ESG ratings produced by regulated financial undertakings in the Union that are used exclusively for internal purposes or for providing in-house financial services and products, including services provided to other entities that are part of the same group as long as the ratings are not disclosed to third parties beyond the group;

RemovedArticle 49 – paragraph 1 a (new): 1a. By ... [3 years after the date of entry into force of this Regulation], the Commission shall, in close cooperation with ESMA, publish a report considering whether the scope of this Regulation is sufficient to ensure confidence in the market and reach its objectives, including the need to extend the scope to ESG data providers. The report may be accompanied, if appropriate, by a legislative proposal. / By ... [3 years after the date of entry into force of this Regulation], the Commission shall publish a report on the functioning of the ESG rating market, including whether its general principles, including the non-interference principle referred to in Article 26, have sufficiently contributed to improving the quality and reliability of ESG ratings and reduced the use of misleading ESG ratings. The Commission shall also consider the need to set out in this Regulation minimum requirements regarding the content of ESG ratings and their methodologies. The report may be accompanied, if appropriate, by a legislative proposal.

Added(c) the provision of ▐ESG data that do not contain an element of rating or scoring, and is not subject to any modelling or analysis▐;

RemovedAnnex I – paragraph 1 – point d: (d) the ownership structure of the applicant at group level;

Added(d) credit ratings issued pursuant to Regulation (EC) No 1060/2009 of the European Parliament and of the Council and any ESG-related scores or factors that are produced or solely used as components of credit ratings as part of the public methodology for credit ratings;

RemovedAnnex I – paragraph 1 – point d a (new): (da) the identity of entities within the ownership structure that would provide ESG rating activities listed in Article 15(1) or any other services that create risks of conflicts of interest within the ESG rating activities to be provided by the applicant;

Added(e) products or services that incorporate an element of an ESG rating, including content produced by financial analysts within the investment research division of a regulated financial institution;

RemovedAnnex I – paragraph 1 – point f: (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(f) second-party opinions on sustainable debt instrument, including but not limited to sustainability bonds, social bonds, sustainability-linked bonds, loans and other types of debt instrument, as well as financing frameworks that govern the use of such instruments;

RemovedAnnex I – paragraph 1 – point f a (new): (fa) the number of entities, financial products and instruments for which the applicant will provide ESG ratings;

Added(g) ESG ratings produced by Union or Member States’ public authorities;

RemovedAnnex I – paragraph 1 – point g a (new): (ga) information on whether and how the methodologies are considered as being based on scientific evidence, including recommendations of the Intergovernmental Panel on Climate Change (IPCC) and the European Scientific Advisory Board on Climate Change;

Added(h) ESG ratings from an authorised ESG rating provider that are made available to users by a third party or an affiliate of the authorised ESG rating provider within the same group structure;

RemovedAnnex I – paragraph 1 – point g b (new): (gb) a description of data processes (data sources, estimation of input data in case of unavailability, frequency of data updates, data quality controls);

Added(i) ESG ratings produced by members of the European System of Central Banks (ESCB) provided that they are not produced or disseminated for commercial purposes;▐

RemovedAnnex I – paragraph 1 – point j a (new): (ja) general information on criteria to be 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(ia) mandatory disclosures pursuant to Articles 6, 8, 9, 10 and 11 of Regulation (EU) 2019/2088;

RemovedAnnex II – Part 1 – paragraph 1 – point a: (a) for each ESG rating, where applicable: / (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; / (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(ib) disclosures pursuant to Articles 5, 6 and 8 of Regulation (EU) 2020/852.

RemovedAnnex II – Part 1 – paragraph 1 – point b: deleted

Added2a. ESMA shall develop draft regulatory technical standards to specify further what is considered to constitute a use exclusively for internal purposes or for providing in-house or intra-group financial services and products in accordance with paragraph 2, point (b).

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

AddedESMA shall submit those draft regulatory technical standards to the Commission by [12 months from the entry into force of this Regulation].

RemovedAnnex III – Part 1 – paragraph 1 – point b: (b) data sources including whether data is sourced from information disclosure under Directive 2022/2464 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 estimation of input data in case of unavailability, frequency of data updates;

AddedPower is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) 1095/2010.

RemovedAnnex III – Part 1 – paragraph 1 – point c: (c) information on how the methodologies are based on scientific evidence;

AddedDefinitions

RemovedAnnex III – Part 1 – paragraph 1 – point d: (d) information on the ratings’ objective, clearly marking whether the rating is assessing impact materiality, financial materiality or some other dimensions and, 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;

AddedFor the purposes of this Regulation, the following definitions apply:

RemovedAnnex III – Part 1 – paragraph 1 – point e: (e) the rating’s scope – i.e., does it cover a specific factor (E, S, or G) or does it cover specific issues (e.g. transition risks);

Added(1) ‘ESG rating’ means a product marketed as providing an ESG opinion, an ESG score or a combination of both, regarding an entity, a financial instrument, a financial product, or an undertaking’s environmental, social or governance profile or characteristics or exposure to ESG risks or the impact on people, society and the environment, that are based on both an established and transparent methodology and defined ranking system of rating categories and that are marketed to third parties, irrespective of whether such ESG rating is explicitly labelled as ‘rating’ or ‘ESG score’, excluding ESG labels;

RemovedAnnex III – Part 1 – paragraph 1 – point f: deleted

Added(2) ‘ESG opinion’ means an ESG assessment that is based on a rules-based methodology and defined ranking system of rating categories, involving directly a rating analyst in the rating process or systems process;

RemovedAnnex III – Part 1 – paragraph 1 – point h: (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(3) ‘ESG score’ means an ESG measure derived from data, using a rule-based methodology, and based only on a pre-established statistical or algorithmic system or model, without any additional substantial analytical input from an analyst;

RemovedAnnex III – Part 1 – paragraph 1 – point i: (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(4) ‘ESG rating provider’ means a legal person whose occupation includes the issuance of ESG ratings ▐

RemovedAnnex III – Part 1 – paragraph 1 – point k: (k) data sources used and any limitation in relation to them for the construction of ESG ratings;

Added(5) ‘regulated financial undertaking in the Union’ means an undertaking, regardless of its legal form, that is: