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ESG Ratings Transparency
The European Council has agreed on a mandate for a regulation on Environmental, Social, and Governance (ESG) ratings to enhance investor confidence in sustainable products. ESG ratings, which assess a company’s sustainability profile and its impact on society and the environment, are becoming increasingly influential in capital markets.

The new rules aim to improve the reliability and comparability of ESG ratings by enhancing the transparency of ESG rating providers’ operations and preventing potential conflicts of interest.

Under the proposed rules, ESG rating providers will need to be authorised and supervised by the European Securities and Markets Authority (ESMA) and comply with transparency requirements.

The Council has clarified the circumstances under which ESG ratings fall under the regulation and introduced a lighter, temporary registration regime for small ESG rating providers. These providers will not have to pay ESMA supervisory fees but will need to comply with organisational and governance principles and transparency requirements.

The Council also introduced the possibility for ESG ratings providers to not have a separate legal entity for certain activities, provided they avoid conflicts of interest.

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