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AFM’s response to EU consultation on regulation of ESG ratings providers

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The Dutch Authority for the Financial Markets (AFM) has responded to the European Commission’s consultation on the functioning of the market for Environmental, Social & Governance (ESG) ratings. The AFM is in favour of introducing European regulation for ESG ratings providers to prevent the risk of greenwashing.

In brief

  • The market for ESG data continues to grow, and parties increasingly depend on this information
  • The AFM is in favour of introducing regulation for providers of ESG ratings, data and related services
  • Lack of transparency regarding data and models underlying ESG scores and conflicts of interest
  • The AFM calls for a proportionate regime that also focuses on the wider set of ESG services

The market for ESG data continues to grow, and dependence on this information is increasing

The AFM has observed that the market for sustainability-related information services is rapidly growing and that market parties increasingly depend on this information. At the same time, this market is unregulated. This gives rise to the risk of greenwashing and investor protection risks, as well as the risk of misallocation of sustainable investments.

The AFM is in favour of introducing European regulation for providers of ESG ratings, data and related services

In its response to the European Commission’s consultation on the market for ESG ratings, the AFM has reiterated its call for the introduction of European regulation for providers of ESG ratings, data and related services. In December 2020, the AFM published a position paper about this, together with its French counterpart, the AMF. It is crucial that sustainability data are reliable, comparable and of a high quality.

Lack of transparency regarding data and models underlying ESG scores and conflicts of interest

In the AFM’s opinion, the main issues are a lack of transparency regarding the data and models used to determine the ESG scores and risks of conflicts of interest at the side of the providers of ESG ratings and data services. In addition, the operations of rating agencies are currently not subject to any mandatory quality safeguards.

The AFM calls for a proportionate regime that also focuses on the wider set of ESG services

The AFM calls for minimum requirements and supervision at the European level, with a regime that is proportionate towards both bigger and smaller market parties. Regulation should not be limited to ESG ratings but should also encompass the wider set of ESG services, such as data services and ESG scores.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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