Europaudvalget 2021-22
EUU Alm.del Bilag 587
Offentligt
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NOTAT
22. juni 2022
2022 - 8109
nicsch
Targeted consultation on the functioning of the ESG ratings market
in the European Union and on the consideration of ESG factors in
credit ratings
I. Use of ESG ratings and dynamics of the market
The study identified a rapid growth in global assets committed to sustain-
able 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 con-
solidation 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.
3. Questions for all respondents
Do you consider that the market of ESG ratings will continue to grow?
•
Yes
•
No
•
No opinion
Reply: Yes
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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 in-
vestment 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
Reply: N/A
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
Reply: N/A
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 play-
ers?
•
Exclusively from large market players
•
Mostly from larger market players
•
Mixed
•
Mostly from smaller market players
•
Exclusively from smaller market players
•
Not applicable
Reply: N/A
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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If you use mostly or exclusively ratings from large ESG rating pro-
viders, what are the main reasons for this?
•
Comment box
Do you consider there is a sufficient offer of ESG ratings from pro-
viders located in the European Union?
•
Yes
•
No
•
No opinion
Reply: N/A
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
Finally, do you use other types of ESG assessment tools than ESG
ratings (e.g. controversy screening, rankings, qualitative assess-
ments, etc.)?
•
Yes
•
No
Reply: N/A
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 re-
search are sufficient to ensure an acceptable level of quality?
•
Yes
•
No
Reply: N/A
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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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
Reply: N/A
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
Reply:
The Commission’s study on sustainability
related-ratings, data and
research published in January 2021 highlighted that there were several is-
sues with the ESG ratings market, in particular on transparency regarding
data sourcing and methodologies.
Further transparency is needed if users are to fully understand the ESG rat-
ing products.
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 objec-
tives 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.
1
OJ L 173, 12.6.2014, p.
349–496,
https://eur-lex.europa.eu/legal-
tent/EN/TXT/?uri=celex%3A32014L0065
con-
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The potential for conflicts of interest, particularly associated with provid-
ers 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 par-
ticipants.
How do you consider that the market of ESG ratings is functioning
today?
•
Well
•
Not well
Please explain
•
Comment box
Reply: There are several issues with the ESG ratings market, in particular
on transparency regarding data sourcing and methodologies. Furthermore,
methodologies and scoring differs vastly between different ESG-rating
providers.
A deeper understanding of these issues is warranted if regulators are to ad-
dress the risk of green washing, capital misallocation and other risks that
may stem from the ESG ratings market in the future.
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 mar-
ket
•
Other
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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
Reply: N/A
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 prod-
ucts 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 meth-
odology used by the providers?
•
Yes
•
No
•
No opinion
Reply: N/A
If you responded yes to the previous question, please specify the bi-
ases
•
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 ex-
plain which ones
•
Comment box
Do you think the current level of correlation between ratings as-
sessing the same sustainability aspects is adequate?
•
Yes
•
No
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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•
No opinion
Reply: N/A
To what degree do you consider that a low level of correlation be-
tween various types of ESG ratings can cause problems for your
business and investment decision, as an investor or a rated com-
pany, on a scale from 1 (no problem) to 10 (significant problem)?
•
Comment box
Reply: N/A
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 underly-
ing information
•
The providers use very different methodologies
•
ESG ratings have different objectives (they assess different sustaina-
bility aspects)
•
Other issue(s)
Reply: N/A
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 dif-
ferent sustainability aspects) is a positive or negative feature of the
market?
•
Rather positive
•
Rather negative
Reply: N/A
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
Reply: N/A
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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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 ser-
vices
•
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 com-
pany may exert undue pressure or influence on the research and rec-
ommendations that a ratings provider offers
•
In the lack of public disclosure of the management of potential con-
flicts of interest
•
Other conflict(s) of interest
Reply: N/A
If you responded ‘other(s) conflicts of interest’ to the previous
ques-
tion, 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
Reply: N/A
What barriers do you see for smaller providers?
•
Comment box
Reply: Cost to establish the necessary data framework could be a consid-
erable barrier to entry for smaller providers. A lack of reputation could
also constitute a barrier for entry for smaller providers.
Do you consider that the market currently allows for smaller pro-
viders who are already present in this market to remain competitive
on a scale from 1 (does not allow) to 10 (fully allows)?
Reply: N/A
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 pro-
portionate) to 10 (very proportionate)?
•
Scale
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Reply: N/A
Do you consider that information on the fees charged by the provid-
ers is sufficiently transparent and clear?
•
Yes
•
No
•
No opinion
Reply: N/A
If you responded ‘no’ to the previous question, please specify what
you consider should be the minimum information to be disclosed
•
Comment box
III. EU intervention
In light of the current situation and recent developments of the ESG rat-
ings 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 rem-
edy the issues identified on the ESG rating market?
•
Yes
•
No
•
No opinion
Reply: Yes
Please explain why:
•
Comment box
Reply: An intervention could foster transparency and comparability
across ESG-rating providers thus providing to a better functioning of the
ESG-ratings market.
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If you responded yes to the previous question, what type of interven-
tion would you consider necessary?
•
Non-regulatory intervention (e.g. guidelines, code of conduct)
•
Legislative intervention
Reply: N/A
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 differen-
tiate 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).
Reply:
- Improving transparency on the operations of the providers
- Improving transparency on the methodology used by the providers
- Improving the reliability and comparability of ratings.
For each of the points you selected in the previous question, please
explain what solutions and options you would consider appropriate
•
Comment box
Reply: A deeper understanding of the challenges mentioned above is
needed if regulators are to address the risk of green washing, capital mis-
allocation and other risks that may stem from the ESG ratings market in
the future.
Specific recommendations for policy solutions also need to be based on a
thorough understanding of the challenges in the market for ESG-ratings.
Therefore, proposals for solutions should await the current impact assess-
ment.
If you responded ‘other’ to the previous question, please specify the
other elements the intervention should focus on
•
Comment box
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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Do you consider that the providers should be subject to an authorisa-
tion or registration system in order to offer their services in the EU?
•
Yes
•
No
•
No opinion
Reply: N/A
Please explain why:
•
Comment box
Reply: N/A
Do you consider that the providers should be subject to an authori-
sation 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
Reply: N/A
Please explain why:
•
Comment box
Do you consider that there should be some minimum disclosure re-
quirements in relation to methodologies used by ESG rating provid-
ers?
•
Yes
•
No
•
No opinion
Reply: N/A
Please explain why:
•
Comment box
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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Do you consider that the providers should be using standardised tem-
plates for disclosing information on their methodology?
•
Yes
•
No
•
No opinion
Reply: N/A
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 re-
gime?
•
Yes
•
No
•
No opinion
Reply: N/A
If you responded yes to the previous question, please specify what
metric you consider should be used to differentiate between provid-
ers:
•
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 instru-
ments
–
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 ser-
vices to the EU investors but providing ratings of the European
companies/financial products be subject to a lighter regime?
•
Yes
•
No
•
No opinion
Reply: N/A
 EUU, Alm.del - 2021-22 - Bilag 587: Orienteringsnotat om dansk høringssvar vedr. Kommissionens offentlige høring om ESG-vurderinger og bæredygtighedsricisi i kreditvurderinger
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If you responded yes to the previous question, please specify what
metric you consider should be used to differentiate between provid-
ers:
•
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 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
Reply: N/A
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
Reply: N/A
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If more than 20 hours per week, please provide an indication of how
many hours would be needed
•
Comment box
Reply: N/A