EU supervisor asks rating agencies to improve the publication of ESG ratings

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EU flags fly outside the European Commission headquarters in Brussels, Belgium October 2, 2019. REUTERS/Yves Herman/File Photo

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LONDON, Feb 10 (Reuters) – Credit rating agencies must improve the way they refer to environmental, social and governance factors in their ratings used by investors to channel huge sums into sustainable funds, said the European Union securities watchdog on Thursday.

In the first half of 2021, EU sustainable fund assets grew by 20% to €1.5 trillion as rating agencies seek to respond to growing investor interest in ESG factors, the report said. European Securities and Markets Authority (ESMA).

The EU wants to increase this flow of funds to help its economy meet its net-zero targets, but regulators worry about “greenwashing” or over-inflated sustainable benchmarks to attract liquidity.

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There is a “high level of divergence” between raters in their ESG disclosures “even for rated entities that have a high exposure to ESG factors,” ESMA said in a statement.

The watchdog set out guidance in March 2020 on how and when assessors’ considerations of ESG factors in their ratings are disclosed to investors in press releases.

It reviewed 64,000 press releases issued between January 2019 and December 2020, and found that the overall level of ESG disclosure had increased since the guidelines were introduced.

“However, there is clearly room for improvement: the level of ESG disclosure differs significantly between credit rating agencies and ESG factors, especially environmental topics,” ESMA said.

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Reporting by Huw Jones; Editing by Catherine Evans and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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