Erhvervsudvalget 2021-22
ERU Alm.del Bilag 338
Offentligt
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EUROPEAN COMMISSION
DIRECTORATE-GENERAL FOR FINANCIAL STABILITY, FINANCIAL SERVICES AND CAPITAL
MARKETS UNION
Financial markets
Corporate reporting, audit and credit rating agencies
CONSULTATION DOCUMENT
TARGETED CONSULTATION ON THE FUNCTIONING
OF THE ESG RATINGS MARKET IN THE EUROPEAN UNION
AND ON THE CONSIDERATION OF ESG FACTORS IN CREDIT RATINGS
Disclaimer
This document is a working document of the Commission services for consultation and
does not prejudge the final decision that the Commission may take.
The views reflected on this consultation paper provide an indication on the approach the
Commission services may take but do not constitute a final policy position or a formal
proposal by the European Commission.
The responses to this consultation paper will provide important guidance to the
Commission when preparing, if considered appropriate, a formal Commission proposal.
Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111
https://ec.europa.eu/info/business-economy-euro_en
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You are invited to reply
by 6 June 2022
at the latest to the
online
questionnaire
available on the following webpage:
https://ec.europa.eu/info/publications/finance-consultations-2022-esg-ratings_en
Please note that in order to ensure a fair and transparent consultation process
only
responses received through the online questionnaire will be taken into account and
included in the report summarising the responses.
This consultation follows the normal rules of the European Commission for public
consultations. Responses will be published in accordance with the privacy options
respondents will have opted for in the online questionnaire.
Responses authorised for publication will be published on the following webpage:
https://ec.europa.eu/info/publications/finance-consultations-2022-esg-ratings_en
Any question on this consultation or issue encountered with the online questionnaire can
be raised via email at
[email protected]
.
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I
NTRODUCTION
The first part of the consultation aims to inform the Commission on the dynamics relating
to the ESG ratings market, and on the interplay between larger and smaller market players.
This section aims to inform on the use and objectives of ESG ratings.
The second part of the consultation aims to identify possible shortcomings in relation to
the consideration of sustainability risks in credit ratings and the disclosures made by CRAs.
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C
ONSULTATION QUESTIONS
PART A
–
ESG R
ATINGS
Background information
ESG ratings are used by a wide variety of investors as part of their sustainable investment
strategy to take into account risks and opportunities linked to ESG issues. Consequently,
these ratings have an increasingly important impact on the operation of capital markets and
on confidence of investors in sustainable financial products. For the purposes of this
consultation the term ESG ratings is based on the definition provided in the
International
Organization of Securities Commissions’ (IOSCO) final report on environmental, social
and governance (ESG) ratings and data products providers
(21 November 2021).
ESG ratings:
refer to the broad spectrum of ratings products that are marketed as providing
an opinion regarding an entity, a financial instrument or a product, a company’s
ESG profile
or characteristics or exposure to ESG, climatic or environmental risks or impact on society
and the environment that are issued using a defined ranking system of rating categories,
whether or not these are explicitly labelled as “ESG ratings”.
Due to the importance and growth of this market, and potential issues identified as to its
functioning, in the
action plan on sustainable finance,
published in March 2018, the
Commission announced a study to be conducted to dig further into the specifics of this
market.
The
study on sustainability-related ratings, data and research
(‘the study’) was published
in January 2021. The study identified a number of issues pertaining to the functioning of
the market of ESG ratings providers, in particular on transparency around data sourcing
and methodologies, as only few firms disclose the underlying indicators or their actual
weights of their assessment. The study also highlighted issues in terms of timeliness,
accuracy and reliability of ESG ratings. Another issue identified related to biases, based
on the size and location of the companies. Finally, it highlighted potential conflicts of
interest associated with certain aspects of their work, including where providers both assess
companies and offer paid advisory services or charge companies to see their own reports.
As part of the
consultation on the renewed sustainable finance strategy,
which took place
in early 2021, the Commission asked stakeholders about their views on the quality and
relevance of ESG ratings for their investment decisions, on the level of concentration in
the market for ESG ratings and need for action at EU level. This confirmed the conclusions
of the study, Stakeholders indicated that better comparability and increased reliability of
ESG ratings would enhance the efficiency of this fast growing market, thereby facilitating
progress towards the objectives of the
EU green deal.
This consultation will directly feed into an impact assessment that the Commission will
prepare in the year 2022 in order to assess in detail the impacts, costs and options of a
possible EU intervention. This consultation should help further clarifying and quantifying
the main findings from the study and input received from market participants.
On 3 February 2022, the
European Securities and Markets Authority (ESMA) published a
call for evidence,
complementary to this consultation, in order to support the exercise
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and provide a mapping of ESG rating providers operating in the EU. The call for evidence
also looks at possible costs of supervision would these providers become subject to some
supervision.
Subject to the result of this impact assessment, the Commission would propose an initiative
to foster the reliability, trust and comparability of ESG ratings by early 2023.
This consultation also seeks views from market participants on the use of other types of
tools that can be offered by sustainability-related providers, including research,
controversy alerts, rankings, etc.
I.
Use of ESG ratings and dynamics of the market
The study identified a rapid growth in global assets committed to sustainable and
responsible investment strategies over the last decade, which is forecast to continue as
sustainable investing becomes fully integrated into asset management.
This leads to higher demand by investors for ESG ratings to help them decide on particular
investment strategies.
The study identified two key trends over the past five years - being consolidation and
reinforcement of the established ESG ratings providers, and growth in the overall number
of providers due to new market entrants.
The study also highlighted that it is challenging for new market entrants to replicate and
compete with the larger providers due to high initial level of investment needed to cover a
broad range of ESG issues, with as many as a thousand data points, across thousands of
companies.
1. Questions for
administrators
investors,
asset
managers
and
benchmark
Do you use ESG ratings?
•
•
•
Yes, very much
Yes, a little
No
Please explain
•
Comment box
Which type of ESG ratings do you use (non-exhaustive list
–
multiple answers
possible):
ESG ratings providing an opinion on companies:
•
ESG ratings providing an opinion on opportunities
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•
•
•
•
•
ESG ratings providing an opinion on the compliance of companies with
frameworks and rules
Exposure to and management of ESG risks
ESG ratings providing an opinion on a company performance towards certain
objectives
ESG ratings providing an opinion on the impact of companies on the society and
environment
ESG ratings providing an opinion on the ESG profile of the company
ESG ratings providing an opinion on investment funds or other financial products
(please specify which financial products):
-
-
•
•
•
•
•
•
Investment funds
Others (comment box)
exposure to and management of ESG risks
impact on the society and environment
ESG characteristics
Other specialised ratings
None
Not applicable
If you responded that you use specialised ratings, please indicate which one(s):
•
Comment box
To what degree do you use ESG ratings in investment or other financing decisions
on the a scale of from 1 to 10 (1- very little, 10
–
decisive)?
•
Comment box
If you don’t use ESG ratings, or use on them to a very small degree, what do you
use on in your investment or other financing decisions?
•
Comment box
Do you use overall ESG ratings or ratings of individual Environmental, Social or
Governance factors?
•
•
•
•
Overall ESG ratings
Ratings of an individual Environmental, Social and Governance factors
Ratings of specific elements within the Environmental, Social and Governance
factors,
other types, please specify
Do you buy ESG ratings as a part of a larger package of services?
•
•
•
Yes
No
Not applicable
If you responded yes to the previous question, what other services do you buy?
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•
Comment box
If you responded yes to the previous question, do you consider that buying ESG ratings
as a part of a larger package would give rise to potential conflicts of interests?
•
Comment box
What are you using ESG ratings for? (multiple choice)
•
•
•
•
•
•
•
as a starting point for internal analysis
as one of many sources of information that influence the investment decisions
to meet regulatory or reporting requirements
as a decisive input into an investment decision
as a reference in financial contracts and collaterals
for risk management purposes
other(s).
If you use ESG ratings for other purposes, please specify which ones?
•
Comment box
As a benchmark administrator, how do you take into account ESG ratings for the
construction of a benchmark and/or in disclosures around a benchmark?
•
Comment box
Do you refer to ESG ratings in any public documents or materials?
•
•
Yes
No
If you responded yes to the previous question, specify the type of documents of
materials
•
Comment box
What do you value and need most in ESG ratings:
•
•
•
•
•
•
•
•
transparency in data sourcing and methodologies,
timeliness, accuracy and reliability of ESG ratings,
final score of individual factors
aggregated score of all factors
rating report explaining the final score or aggregated score
specific information, please explain
data accompanying rating
other aspects
If you responded ‘other aspects’ to the previous question, please explain why :
•
Comment box
To what degree to you consider the ESG ratings market to be competitive and allows
for choice of ESG rating providers at reasonable costs, on a scale from 1 (not
competitive) to 10 (very competitive)?
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•
Comment box
2. Questions for companies subject to ratings
Do you have access to ESG ratings of your own company?
•
•
•
Yes
No
Comment box
To what degree do you use ESG ratings to assess the way you manage sustainability
risks and opportunities and your impact on the outside world, on a scale from 1 (not
determinant) to 10 (determinant)?
•
Comment box
If you do not use ratings, what do you use to assess the way you manage
sustainability risks and opportunities and your impact on the outside world?
•
Comment box
Does this vary between individual E, S and G factors?
•
Comment box
Do you provide information on ESG ratings you have received in any of your public
documents?
•
•
•
Yes
No
No opinion
If you responded yes to the previous question, please specify where you disclose this
information:
•
Answer
3. Questions for all respondents
Do you consider that the market of ESG ratings will continue to grow?
•
•
•
Yes
No
No opinion
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If you responded ‘yes’ to the previous question, to what extent do you expect the
following factors to be decisive, on a scale from 1 (not at all) to 10 (very much)?
•
•
•
•
Growth in demand from investors in ratings of companies for their investment
decisions
Growth in demand from companies in ratings including on rating future strategies
Further standardisation of information disclosed by companies and other market
participants
Other
If you responded ‘other’ to the previous question, please
specify the other reasons
you see for this market to continue to grow
•
Comment box
Are you considering to use more ESG ratings in the future?
•
•
•
•
Yes, to a large degree
Yes, to some degree
No
No opinion
If you responded ‘yes’ to the previous question,
please explain why
•
Comment box
If you responded ‘no’ to the previous question, please explain why
•
Comment box
Do you mostly use ESG ratings from bigger or larger market players?
•
•
•
•
•
•
Exclusively from large market players
Mostly from larger market players
Mixed
Mostly from smaller market players
Exclusively from smaller market players
Not applicable
If you use mostly or exclusively ratings from large ESG rating providers, what are
the main reasons for this?
•
Comment box
Do you consider there is a sufficient offer of ESG ratings from providers located in
the European Union?
•
•
•
Yes
No
No opinion
If you responded ‘yes’ to the previous question, please explain why
•
Comment box
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If you responded ‘no’ to the previous question, please explain why
•
Comment box
Finally, do you use other types of ESG assessment tools than ESG ratings (e.g.
controversy screening, rankings, qualitative assessments, etc.)?
•
•
Yes
No
If you responded ‘yes’ to the previous question, how important are these tools in
relation to the implementation of your investment strategies and engagement
policies?
•
Comment box
Do you believe that due diligences carried out by users of ESG research are sufficient
to ensure an acceptable level of quality?
•
•
Yes
No
If you replied ‘no’ to
the previous question, would you see merit in refining the
current definition of research under
Directive 2014/65/EU
1
?
•
Comment box
Do you further believe that ESG research products have reached a sufficient level of
maturity and comparability to allow users to fully understand the products they use?
•
Comment box
1
OJ
L
173,
12.6.2014,
p.
content/EN/TXT/?uri=celex%3A32014L0065
349–496,
https://eur-lex.europa.eu/legal-
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II.
Functioning of the ESG ratings market
The study identified several issues on the functioning of the ESG ratings market that may
hamper its further development.
In particular, there is an overall demand for greater transparency of objectives sought,
methodologies adopted and quality assurance processes in place ESG rating providers.
The timeliness, accuracy and reliability of the output from ESG ratings providers were also
identified as issues for the good functioning of this market.
Another issue identified in the study concerns the existence of biases and low correlation
across ESG ratings.
The potential for conflicts of interest, particularly associated with providers both
evaluating companies and offering paid advisory services, was further highlighted. The
study stressed that providers selling multiple products require an appropriate separation
between departments to avoid potential conflicts of interest.
This section aims to inform on the functioning of the ESG ratings market and potential
issues that hamper its development and trust by market participants.
How do you consider that the market of ESG ratings is functioning today?
•
•
Well
Not well
Please explain
•
Comment box
To what degree do you consider that the following shortcomings / problems exist in
the ESG ratings market, on a scale of from 1 to 10 (1- very little, 10
–
important)?
•
•
•
•
•
•
•
•
•
•
Lack of transparency on the operations of the providers
Lack of transparency on the methodologies used by the providers
Lack of clear explanation of what individual ESG ratings measure
Lack of common definition of ESG ratings
Variety of terminologies used for the same products
Lack of comparability between the products offered
Lack of reliability of the ratings
Potential conflicts of interests
Lack of supervision and enforcement over the functioning of this market
Other
If you responded ‘other’ to the previous question, please explain which ones:
•
Comment box
What do you think of the quality of the ratings offered on a scale from 1 (very poor)
to 10 (very good)?
•
Scale
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Please explain why:
•
Comment box
If you responded ‘very poor’ or ‘poor’ to the previous question, wo what degree do
you consider that this affect your trust in the products that are offered, on a scale
from 1 (no affect) to 10 (affects very much)?
•
Answer (scale 1 to 10)
Please explain why
•
Comment box
Do you consider that there are any significant biases with the methodology used by
the providers?
•
•
•
Yes
No
No opinion
If you responded yes to the previous question, please specify the biases
•
•
•
Biases based on the size of the company rated
Biases based on the location of the company
Other biases
If you responded ‘other biases’ to the previous question, please explain which ones
•
Comment box
Do you think the current level of correlation between ratings assessing the same
sustainability aspects is adequate?
•
•
•
Yes
No
No opinion
To what degree do you consider that a low level of correlation between various types
of ESG ratings can cause problems for your business and investment decision, as an
investor or a rated company, on a scale from 1 (no problem) to 10 (significant
problem)?
•
Comment box
How much do you consider each of the following to be an issue, on a scale from 1 (no
issue) to 10 (very significant issue)
•
•
•
•
There is a lack of transparency on the methodology and objectives of the
respective ratings
The providers do not communicate and disclose the relevant underlying
information
The providers use very different methodologies
ESG ratings have different objectives (they assess different sustainability aspects)
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•
Other issue(s)
If you responded ‘other issue’ in the previous question, please explain which one(s)
•
Comment box
Do you consider that a variety of types of ESG ratings (assessing different
sustainability aspects) is a positive or negative feature of the market?
•
•
Rather positive
Rather negative
Please explain your response to the previous question :
•
Comment box
To what degree do you consider this market to be prone to potential conflicts of
interests on a scale from 1 (very little) to 10 (very much)?
•
Comment box
If you responded ‘yes’ to the previous question, where do you see the main risks?
(multiple choice)
•
•
•
•
Where providers both assess companies and offer paid advisory services
Where providers charge companies to see their own reports
In the absence of separation of sales and analytical teams
With the ownership system of some providers, where the parent company may exert
undue pressure or influence on the research and recommendations that a ratings
provider offers
In the lack of public disclosure of the management of potential conflicts of
interest
Other conflict(s) of interest
•
•
If you responded ‘other(s) conflicts of interest’ to the previous question, please specify
the additional risks you see
•
Comment box
To what degree do you consider that the ESG ratings market as it operates today
allows for smaller providers to enter the market on a scale from 1 to 10 (1- hard to
enter, 10
–
easy to enter)?
•
Scale from 1 to 10
What barriers do you see for smaller providers?
•
Comment box
Do you consider that the market currently allows for smaller providers who are
already present in this market to remain competitive on a scale from 1 (does not
allow) to 10 (fully allows)?
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To what degree do you consider the fees charged for ESG ratings to be proportionate
to the services provided, on a scale from 1 (not proportionate) to 10 (very
proportionate)?
•
Scale
Do you consider that information on the fees charged by the providers is sufficiently
transparent and clear?
•
•
•
Yes
No
No opinion
If you responded ‘no’ to the previous question, please specify what you consider
should be the minimum information to be disclosed
•
Comment box
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III.
EU intervention
In light of the current situation and recent developments of the ESG ratings markets, and
the potential issues affecting it, this section aims to gather stakeholder views on the need
and type of a possible intervention at EU level.
a) Need for an EU intervention
Taking into account your responses to the previous sections, do you consider that
there is a need for an intervention at EU level to remedy the issues identified on the
ESG rating market?
Yes
No
No opinion
Please explain why :
Comment box
If you responded yes to the previous question, what type of intervention would you
consider necessary?
Non-regulatory intervention (e.g. guidelines, code of conduct)
Legislative intervention
If you responded yes to the previous question, what do you consider should be the
prime focus of the intervention? (multiple choice)
Improving transparency on the operations of the providers,
Improving transparency on the methodology used by the providers,
Improving the reliability and comparability of ratings,
Clarifying what is meant by and captured by ESG ratings, to differentiate from
other tools and services,
Clarifying objectives of different types of ESG ratings,
Improving transparency on the fees charged by the providers,
Avoiding potential conflicts of interests,
Providing some supervision on the operations of these providers,
Other measures (please specify).
For each of the points you selected in the previous question, please explain what
solutions and options you would consider appropriate
[comment box]
If you responded ‘other’ to
the previous question, please specify the other elements
the intervention should focus on
[comment box]
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Do you consider that the providers should be subject to an authorisation or
registration system in order to offer their services in the EU?
Yes
No
No opinion
Please explain why :
Comment box
Do you consider that the providers should be subject to an authorisation or
registration system in order to provide ESG ratings on EU companies or non-EU
companies’ financial instruments listed
in the EU even if they offer services to global
or non-EU investors?
Yes
No
No opinion
Please explain why
Comment box
Do you consider that there should be some minimum disclosure requirements in
relation to methodologies used by ESG rating providers?
Yes
No
No opinion
Please explain why
Comment box
Do you consider that the providers should be using standardised templates for
disclosing information on their methodology?
Yes
No
No opinion
Please explain:
Comment box
Do you consider that the rules should be tailored to the size of the provider and
hence have smaller providers subject to a lighter regime?
Yes
No
No opinion
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If you responded yes to the previous question, please specify what metric you consider
should be used to differentiate between providers:
Total revenue
Revenue from ESG ratings
Number of employees
Other metric(s)
in the case of providers located outside the EU and not providing services to EU
investors but rating EU companies/financial instruments
–
percentage of EU
companies/financial products rated
•
If you responded ‘other metric(s)’ please explain which one(s):
Comment box
Should the providers located outside of the EU, not providing services to the EU
investors but providing ratings of the European companies/financial products be
subject to a lighter regime?
Yes
No
No opinion
If you responded yes to the previous question, please specify what metric you consider
should be used to differentiate between providers:
Percentage of EU companies/financial products rated
Other metric(s)
If you responded ‘other metric(s)’ please explain which one(s):
Comment box
b) Costs of an EU intervention
Questions for ESG rating providers
Assume that in order to offer services to investors in the European Union or to rate
European companies/financial products, ESG rating providers would be subject to
an authorisation or registration requirement. How high would you estimate the one-
off cost of applying for such an authorisation/registration? (please provide an
estimate in EUR)
Comment box
In order to increase transparency, there may be considerations to introduce
disclosure obligations on ESG rating providers. This could include, for example,
disclosures on websites or annual reports on the operations and methodologies used
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by ESG rating providers and/or providing more information on how these
methodologies were applied to specific ratings. Please estimate the number of hours
needed to produce the following disclosures:
Disclosures on the operations and
methodologies
One-off costs (total Ongoing costs
hours)
(hours per week)
Negligible
Less than 5 hours (but not
negligible)
5 to 9 hours
10 to 19 hours
20 to 39 hours
40 to 79 hours
80 to 160 hours
More than 160 hours
Additional
disclosures in ratings
(hours per rating)
If you chose more than 160 hours in the table above, please provide an indication of
how many hours would be needed (for the costs in each column, as applicable). You
may also use the following comment box if you wish to provide any further
explanations.
•
Comment box
What percentage of these costs would be incurred even in the absence of legislation?
0% 1-20% 21%-40% 41%-60% 61%-80% 81%-100%
Do you see any other costs related to providing these disclosures (e.g. adjustment of
IT systems, external consultants, etc.)?
•
•
•
Yes
No
Don’t
know
If yes, please specify what type of cost and provide an estimate of its amount where
feasible:
•
Comment box
How many hours per week would you consider necessary to perform tasks that would
be linked to fulfilling ongoing supervisory requirements?
•
Negligible time
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Less than 5 hours (but not negligible)
5 to 9 hours
10 to 19 hours
20 to 40 hours
More than 40 hours
If more than 40 hours, please provide an indication of how many hours would be
needed:
[comment box]
If there were similar conflict of interest provisions introduced for ESG rating
providers as in Article 6 and Annex I to
Regulation (EU) 1060/2009 (CRA regulation),
would you consider the associated costs to be of similar magnitude?
Yes
No
Don’t know
•
Please explain
Comment box
Do you expect that you would face any further costs as an ESG rating provider as a
result of a possible legal framework besides those mentioned above?
Yes
No
Don’t
know
•
If yes, please explain what types of costs, whether they would be one-off or ongoing
and provide estimates if possible:
Comment box
Do you estimate that possible additional compliance costs implied by a minimum
requirement framework for ESG ratings would be compensated by the benefits of
higher quality and more reliable ratings?
Not at all
To some extent
To a reasonable extent
To a great extent
No opinion
What other impact(s) of a regulatory and supervisory framework on the operations
of ESG rating providers would you see (e.g. potential impacts on competition, SMEs
assessed by ratings, users of ratings, sustainable development)?
Comment box
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Questions for supervisors
How many hours of work would you consider necessary to perform tasks that
would be linked to granting an authorisation for one ESG rating provider?
Negligible time
Less than 5 hours (but not negligible)
5 to 9 hours
10 to 19 hours
20 to 40 hours
More than 40 hours
If more than 40 hours, please provide an indication of how many hours would be
needed
comment box
How many hours per week would you consider necessary to perform supervisory
tasks per ESG rating provider?
Negligible time
Less than 5 hours (but not negligible)
5 to 9 hours
10 to 19 hours
More than 20 hours
If more than 20 hours per week, please provide an indication of how many hours
would be needed
comment box
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PART B
–
I
NCORPORATION OF
ESG
FACTORS IN CREDIT RATINGS
The provision of credit ratings is highly regulated in the EU as well as globally. Global
standards are established by the
IOSCO in its code of conduct for CRAs.
The EU legal
framework regulates the activities of CRAs with a view to protect investors and financial
markets by guaranteeing the transparency, independence and integrity of the credit rating
process
–
thereby enhancing the quality of ratings. All CRAs operating in the EU need to
register with ESMA, which is the sole European supervisor. Credit ratings used for the
purposes stemming from the EU legislation need to be provided by CRAs registered and
supervised by ESMA. If a non-EU CRA wants its ratings to be used for regulatory
requirements in the EU (i.e. by EU financial institutions), the
CRA Regulation
provides
for two alternatives, certification or endorsement.
There are a number of EU regulatory requirements related to the use of credit ratings. , in
particular, in the
Capital Requirements Regulation (CRR)
and in the
Solvency Capital
Requirement (SCR).
The European Central Bank also makes extensive use of credit ratings
in its open market operations.
Both
EU legislation
2
and the IOSCO code of conduct define precisely the objective of the
credit rating:
‘credit
rating means an opinion regarding the creditworthiness of an entity, a
debt or financial obligation, debt security, preferred share or other financial instrument, or
of an issuer of such a debt or financial obligation, debt security, preferred share or other
financial instrument, issued using an established and defined ranking system of rating
categories’.
In other words, credit ratings assess the likelihood of the default of the rated entity or
security. Credit ratings reply to the question: “what is the likelihood of getting my money
back?” They are neither investment
recommendations nor they determine the value of the
rated entity or instruments.
ESG risks may be relevant for the assessment of creditworthiness depending on the sector,
geographical location and the entity itself. CRAs methodologies define which factors,
including ESG factors, are considered to be relevant for the assessment of creditworthiness
and how they are taken into account in the credit rating process. ESMA supervises the
soundness of methodologies, which in accordance with the CRA Regulation need
to be rigorous, systematic, continuous, based on historical experience and back-tested. In
its Technical Advice provided to the Commission in 2019, ESMA concluded that while it
is clear that CRAs are considering E, S or G factors in their credit ratings, the extent to
which each factor is considered varies by asset class, according to the importance assigned
to that factor by a CRA’s methodology. Currently, ESMA is conducting a thorough
assessment of how CRA’s methodologies incorporate
sustainability risks.
The CRA Regulation includes a number of disclosure obligations in relation to the
methodologies as well as individual credit ratings. In 2019,
ESMA conducted a public
consultation on disclosure requirements applicable to credit ratings.
Following the finding
on the insufficient transparency on the relevance of ESG factors to credit ratings, one of
the topics of the consultation,
ESMA issued guidelines on disclosure requirements
applicable to credit ratings.
2
Regulation (EU) No 462/2013 of the European Parliament and of the Council of 21 May 2013 amending
Regulation (EC) No 1060/2009 on credit rating agencies,
https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX:32013R0462
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These ESMA guidelines expect CRAs to identify in their press releases if ESG factors have
been key drivers behind a change in the credit rating. CRAs are asked to identify relevant
factors, elaborate on their materiality and provide a reference to the methodology or the
associated model. The ESMA guidelines came into effect in April 2020.
A recent assessment of the application of the guidelines revealed that the improvement of
transparency has been partial. ESMA has analysed press releases over the period January
2019
–
December 2020 and compared the number of references to ESG
considerations before and after April 2020. The main findings are that the improvement is
partial and not uniform.
This consultation builds on the findings of ESMA and the consultation on renewed
sustainable finance strategy.
I.
Questions to users of credit ratings
Do you use credit ratings for investment decisions?
Yes, as a starting point for internal analysis
Yes, as one of many sources of information that influence investment decisions
Yes, as a decisive input into an investment decision
No
Other
If you use credit ratings for other purposes, please explain :
[Comment box]
Do you use credit ratings for regulatory purposes (e.g. stemming from the
Capital
Requirements Regulation
or
Solvency II)?
Yes
No
These
requirements don’t apply to
me
•
Is it important for you to understand to what extent individual credit rating actions
have been influenced by sustainability factors?
Not important at all
Slightly important
Important
Very important
No opinion
Do you find information about the extent to which CRAs methodologies or the rating
process incorporate sustainability factors sufficiently well disclosed?
Yes
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No
No opinion
Please explain
[comment box]
Where do you look currently for the information on how ESG factors impact the
credit rating? (multiple choice)
Press release accompanying credit ratings
Additional analysis and reports available to subscribers
Additional information materials available publicly
Description of methodologies or rating process for specific asset classes, sectors
or types of entities
Frameworks or documents describing general approach to incorporation of ESG
factors in credit rating process
I don’t know where to find such
information
Other
•
If you responded ‘other’ please
explain where:
[Comment box]
Does the level of disclosure differ depending on individual CRAs?
Yes
No
No opinion
If you answered yes to the previous question, please explain the differences in the level
of disclosure:
[Comment box]
What are the trends on the market in relation to disclosure of information as to which
credit ratings actions have been influenced by sustainability factors? (multiple choice)
The level of disclosure has improved sufficiently since the entry into effect of
ESMA guidelines (April 2020)
In general the level of disclosure has improved sufficiently although some CRAs
are lagging behind
The overall level of disclosure is insufficient although some CRAs have
sufficiently improved
The extent to which CRAs incorporate ESG factors in credit ratings depends on the
asset classes methodologies and the importance assigned to the given factor by a
CRA’s methodology. In addition, some CRAs have developed overall frameworks
explaining how they incorporate ESG factors in credit ratings across asset classes,
some publish reports reviewing past credit rating actions or specific sections
accompanying credit rating actions.
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In your opinion, what are trends in the relation to the incorporation of ESG factors
in the credit rating process and methodologies?
CRAs have sufficiently improved the incorporation of ESG factors in their
methodologies and rating process,
In general CRAs have sufficiently improved the incorporation of ESG factors in
credit ratings although some CRAs are lagging behind
In general the development is insufficient although some CRAs have improved
the incorporation of ESG factors in their methodologies and rating process,
CRAs have insufficiently improved the incorporation of ESG factors in their
methodologies and rating process
II.
Questions to Credit Rating Agencies
Do you explicitly incorporate ESG factors in your methodologies?
Yes
Yes, but only for asset classes and sectors where relevant
Partially
No
Please explain your reply
[Comment box]
Which individual E, S and G factors do you consider in your methodologies?
(multiple choice)
•
•
•
•
Environmental factors
Social factors
Governance factors
Other
–
sustainability related factors
Please explain in more details
•
[comment box]
In addition to methodologies, do you have a framework or a document describing
how you incorporate ESG factors in the credit rating process? By framework, we
mean any general approach to the incorporation of ESG factors in credit rating
process, in addition to methodologies for asset classes and sectors.
Yes
No
Other
If you answered other, please explain
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[Comment box]
Have you improved disclosure on ESG factors in credit ratings since April 2020 when
ESMA guidelines became applicable?
Yes
Partially
No, but we plan to improve
No, because we have already been disclosing such information
No
If you replied no to the previous question, please explain why
[Comment box]
III.
Questions on the need for EU intervention (all respondents)
Do you consider that the current trends in the market are sufficient to ensure that
CRAs incorporate relevant ESG factors in credit ratings?
Yes
No
No opinion
Do you consider that the current trends in the market and application of ESMA
guidelines on disclosure applicable to CRAs are sufficient to ensure understanding
among users as to how ESG factors influence credit ratings?
Yes
No
No opinion
If you responded ‘no’ to the previous questions, what type of intervention would you
consider necessary? (multiple choice)
Further detailing of ESMA guidelines on the disclosure of ESG factors in credit
ratings
Further supervisory actions by ESMA
Legislative intervention.
While improvements are insufficient, we do not see further scope for EU
intervention
Other, please specify
If you responded ‘other’ to the previous question, please specify the other type of
intervention you consider necessary:
Comment box
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Regarding the possible regulatory intervention, what type of requirements do you
find relevant? (multiple choice)
Press releases: introduce mandatory requirements mirroring the provision of
ESMA guidance on the disclosure ESG factors in credit ratings
Press releases: in addition to the previous option require CRAs to publish
information not only about the impact of ESG factors on credit ratings, but also the
lack of it,
Methodologies: require CRAs to explain the relevance of ESG factors in
methodologies,
Methodologies: require CRAs to take into account ESG factors where relevant,
Other.
If you responded other, please explain:
[Comment box]
What kind of risks or merits of the EU intervention do you see?
Provide further clarity on the impact of ESG factors on the creditworthiness of
creditors and financial instruments
More coherent approach of CRAs to the incorporation of ESG factors into credit
ratings
Concerns about too much prominence given to ESG factors
Others
If you responded ’others’, please explain:
[Comment box]
What would be the consequences of the lack of the EU intervention? (multiple
choice)
Market trends are sufficient to meet investors demands for information on the
impact of ESG factors on credit ratings
CRAs will respond to market pressure and ensure the incorporation of ESG
factors in credit ratings
The existing gap between approaches of CRAs to the incorporation of ESG
factors in credit ratings will grow
Concerns about the insufficient incorporation of ESG factors in credit ratings lack
of understanding among investors why certain credit rating actions are not
impacted by ESG factors
Costs of EU intervention - questions for CRAs
Where applicable, what are your costs in EUR to disclose information based on the
current Guidelines on disclosure of ESG factors in credit ratings?
[Comment box]
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Would you foresee any additional compliance costs if the current Guidelines on
disclosure of ESG factors in credit ratings were to become part of the EU legislation?
[Comment box]
To what degree do CRAs overall already follow the guidelines in the absence of an
obligation to do so?
•
0% 1-40% 41%-60% 61%-80% 81%-90%
91%-99%
100%
Would you expect additional compliance costs if EU legislation explicitly required
CRAs to take into account ESG factors where relevant in the rating process?
No or negligible additional costs
Low additional costs
Moderate additional costs
High additional costs
Do not know
If you do expect additional compliance costs, how high would you expect these
additional costs, as compared to current practice?
[Comment box]
Please explain
[Comment box]
27