Changes from report parliamentary committee draft to plenary report

Added3. ESG rating providers that outsource functions or any services or activities that are relevant for the provision of an ESG rating shall remain fully responsible for disclosing the information referred to in Annex II.

AddedExemptions on governance requirements

Added1. ESMA may exempt an ESG rating provider at its request from complying with the organisational requirements laid down in Article 14(10) where that ESG rating provider is able to demonstrate that those requirements are not proportionate in view of the nature, scale and complexity of its business and the nature and range of the issuance of ESG ratings and provided that:

Added(a) the ESG rating provider is a small or medium-sized undertaking according to the criteria laid down in Article 3 of Directive 2013/34/EU and is not part of a group;

Added(b) the ESG rating provider has implemented measures and procedures, and in particular internal control mechanisms, reporting arrangements and measures, that ensure the independence of rating analysts and persons approving ESG ratings and that ensure the effective compliance with this Regulation;

Added(c) the size of the ESG rating provider is not determined in such a way as to avoid compliance with the requirements of this Regulation by an ESG rating provider or a group of ESG rating providers.

Added▐CHAPTER 2

AddedTransparency requirements

AddedDisclosure of the methodologies, models, and key rating assumptions used in ESG rating activities to the public

Added1. ESG rating providers shall disclose on their website, as a minimum, the methodologies, models and key rating assumptions they use in their ESG rating activities, including the information referred to in points (d) and (g) of Annex I and point 1 of Annex III.

Added1a. Separate E, S and G ratings shall be provided rather than a single ESG metric that aggregates E, S and G factors. ESG rating providers shall provide the disclosures referred to in this Article and in Article 22 separately for each factor.

Added1b. By way of derogation from paragraph 1a of this Article, ESG rating providers may provide a single ESG rating that aggregates E, S and G factors, if they provide, without prejudice to further disclosure obligations under this Regulation, the information referred to in point (f) of Annex III.

Added2. ESMA shall develop draft regulatory technical standards to specify further the elements that are to be disclosed in accordance with paragraph 1.

Added2a. ESMA shall develop draft implementing technical standards to specify the data standards, formats and templates that ESG rating providers are to use to present the information referred to in paragraph 1.

Added3. ESMA shall submit the draft ▐technical standards referred to in pargraphs 2 and 2a to the Commission by ... [6 months from the date of entry into force of this Regulation].

AddedPower is delegated to the Commission to adopt the ▐ technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14and Article 15 of Regulation (EU) No 1095/2010.

Added3a. The ESG rating provider shall provide the information referred to in Annex III as soon as it has been authorised or recognised pursuant to this Regulation.

AddedThe ESG rating provider shall make the changes needed following the entry into force of the regulatory technical standards referred to in the second subparagraph of this paragraph.

AddedDisclosures to users of ESG ratings, subscribers of ESG ratings and rated entities

Added1. 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.

Added1a. 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.

AddedWhere 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.

Added1b. ESG rating providers shall notify a rated entity that it will be rated.

Added1c. Where an ESG rating provider issues an unsolicited rating, it shall include a prominent statement to that effect in the rating, including information on whether the entity or a related third party participated in the rating process and whether the ESG rating provider had access to the management and other relevant internal documents for the rated entity or a related third party.

Added2. ESMA shall develop draft regulatory technical standards to specify further the elements that are to be disclosed in accordance with paragraph 1.

Added2a. ESMA shall develop draft implementing technical standards to specify the data standards, formats and templates that ESG rating providers are to use to present the information as referred to in paragraph 1.

Added3. ESMA shall submit ▐ the draft ▐technical standards referred to in paragraphs 2 and 2a to the Commission by [6 months from the date of entry into force of this Regulation].

AddedPower is delegated to the Commission to adopt the ▐technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 and 15 of Regulation (EU) No 1095/2010.

AddedIndependence and conflicts of interest

AddedIndependence and avoidance of conflicts of interest

Added1. ESG rating providers shall have in place robust governance arrangements, including a clear organisational structure with well-defined, transparent, and consistent roles and responsibilities for all persons involved in the provision of an ESG rating.

Added2. ESG rating providers shall take all necessary steps to ensure that any ESG rating provided is not affected by any existing or potential conflict of interest, or by any business relationship, either from the ESG rating provider itself or from their shareholders, managers, rating analysts, employees or any other natural person whose services are placed at the disposal or under the control of the ESG rating providers, or any person directly or indirectly linked to them by control or any third-party provider to whom functions or any services or activities have been outsourced.

Added3. 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 or third-party provider, ESMA shall take action. ESMA shall require the ESG rating provider to take measures to mitigate that risk. ▐

AddedA 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:

Added(a) holding 5 % or more of the capital of any other ESG rating provider;

Added(b) having the right or the power to exercise 5 % or more of the voting rights in any other ESG rating provider;

Added(c) having the right or the power to appoint or remove members of the administrative or supervisory board of any other ESG rating provider;

Added(d) being a member of the administrative or supervisory board of any other ESG rating provider;

Added(e) exercising or having the power to exercise control or a dominant influence over any other ESG rating provider.

AddedThis paragraph does not apply to investments in other ESG rating agencies belonging to the same group of ESG rating agencies or to investments in ESG rating providers that are micro or small-sized undertakings according to the criteria laid down in Article 3 of Directive 2013/34/EU.

AddedWhere conflict of interest as referred to in the first subparagraph 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 to cease providing the ESG ratings.

Added4. ESG rating providers shall disclose to ESMA all existing or potential conflicts of interest, including conflicts of interest arising from the ownership or control of the ESG rating providers.

Added5. ESG rating providers shall establish and operate policies, procedures, and effective organisational arrangements for the identification, disclosure, prevention, management and mitigation of conflicts of interest. ESG rating providers shall regularly review and update those policies, procedures and arrangements. Those policies, procedures and arrangements shall specifically prevent, manage and mitigate conflicts of interest due to the ESG rating provider’s ownership or control or due to other interests in the ESG rating provider’s group, or conflicts of interest that are caused by other persons that exercise influence or control over the ESG rating provider in relation to determining the ESG rating.

Added6. ESG rating providers shall review their operations to identify potential conflicts of interests at least each year.

AddedManagement of potential conflicts of interests from employees

Added1. ESG rating providers shall ensure that their employees and any other natural persons whose services are placed at their disposal or under their control and who are directly involved in the provision of an ESG rating:

Added(a) have the skills that are necessary for performing their tasks and duties and are subject to effective management and supervision;

Added(b) are not subject to undue influence or conflicts of interest;

Added(c) that the compensation and performance evaluation of those persons do not create conflicts of interest or otherwise impinge upon the integrity of the ESG rating determination process;

Added(d) do not have any interests or business connections that compromise the activities of the ESG rating provider;

Added(e) are prohibited from contributing to an ESG rating determination by way of engaging in bids, offers and trades on a personal basis or on behalf of market participants, except where such contribution is explicitly required as part of the ESG rating methodology and is subject to specific rules laid down therein;

Added(f) are subject to effective procedures to control the exchange of information with other employees involved in activities that may create a risk of conflicts of interest or with third parties, where that information may affect the ESG rating.

Added2. ESG rating providers shall establish specific internal control procedures to ensure the integrity and reliability of the employee or person determining the ESG rating, including internal sign-off by management before the dissemination of the ESG rating. ESMA may require ESG rating providers to provide information about such control procedures.

AddedFair, reasonable, transparent and non-discriminatory treatment of users of ESG ratings

Added1. ESG rating providers shall take steps that are adequate to ensure that fees charged to clients are fair, reasonable, transparent and non-discriminatory▐.

Added2. For the purposes of paragraph 1, ESMA may require ESG rating providers to provide it with documented evidence, may take supervisory measures in accordance with Article 33, and may decide to impose fines in accordance with Article 34 where it finds that fees from ESG rating providers are not fair, reasonable, transparent and non-discriminatory▐.

AddedSupervision by ESMA

AddedGeneral principles

AddedNon-interference with the content of ratings or methodologies

AddedIn carrying out their duties under this Regulation, ESMA, the Commission or any public authorities of a Member State shall not interfere with the content of ESG ratings or methodologies, provided those ratings and methodologies meet the criteria set out in this Regulation.