ESG ratings get regulated: why that’s a good thing for businesses

illuminem summarizes for you the essential news of the day. Read the full piece on Forbes or enjoy below:

🗞️ Driving the news: The European Commission has introduced the first rules to regulate ESG ratings providers
• The new ESG Ratings Regulation aims to enhance the reliability, transparency, and comparability of ESG ratings by scrutinizing methodologies and vetting providers for conflicts of interest

🔭 The context: Previously, the ESG ratings market was fragmented and inconsistent, with little correlation between different ratings
• The new regulations will require providers to disclose their rating processes and ensure independence, supervised by the European Securities Markets Authority (ESMA)

🌍 Why it matters for the planet: The regulations will help standardize ESG evaluations, improving transparency and aiding companies and suppliers in meeting sustainability standards
• This will support more consistent and meaningful sustainability reporting, benefiting investors and consumers alike

⏭️ What's next: The UK and other jurisdictions like India, Japan, and Singapore are following suit with similar regulations
• This move may lead to market consolidation, reducing the number of ESG ratings providers and increasing the reliability of ratings

💬 One quote: "The current ESG rating market suffers from deficiencies and is not functioning properly, with investors and rated entities' needs regarding ESG ratings not being met and confidence in ratings being undermined," stated the European Commission's initial proposal

📈 One stat: A 2021 Deloitte analysis found about 600 different ESG ratings providers operating in the market

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