The proposal was opened up for the public consultations from 15 June 2023 to 1 September 2023, and 68 feedbacks were received. Following the consultations, the European Council(EC) has published its mandate for negotiation with the European Parliament. The negotiating mandate can be downloaded here. The key aspects of the negotiating mandate are as follows.
- ESG rating providers operating in the EU must comply with requirements: authorization from ESMA, equivalence decision, endorsement, or recognition for non-EU providers.
- The mandate outlines territorial scope and operation definitions in the EU, with specific provisions under the endorsement regime.
- It introduces a lighter, three-year, optional registration regime for existing and new small ESG rating providers.
- Small providers under the lighter regime are exempt from ESMA fees; must adhere to general organizational, governance, and transparency requirements, and are subject to ESMA oversight.
- Upon exiting the temporary regime, small providers must comply with full regulation, including governance and supervisory fee requirements.
- Council allows ESG rating providers to combine certain activities without separate legal entities, given clear distinction and conflict of interest avoidance measures, excluding consulting or audit activities for rated entities.
Subsequent to review of the feedback and further analysis, both the European Council and European Parliament moved to the next step, which is to negotiate among themselves on the final regulation before it can be implemented.
During the plenary session held from 11 to 14 December 2023, the European Parliament reached a consensus on its negotiating position. The Council’s mandate, agreed upon on 20th December, sets the stage for interinstitutional discussions, expected to commence in January 2024.
Further to this, the International Capital Market Association (ICMA), which was tasked with the development of globally consistent voluntary guidelines on ESG ratings, released a Code of Conduct (CoC) for ESG ratings and data products providers(Read more about the CoC here).
The key difference between the EU ESG Ratings Regulations and the Code of Conduct is that while the former is mandatory and applicable in the EU jurisdiction, the latter is voluntary and is applicable across the world. Together with the EU ESG Ratings Regulations, the CoC is expected to drastically improve the confidence of the market participants in the ESG ratings, both inside and outside Europe.