The European Commission has expanded on Tuesday the economic activities that contribute to mitigating climate change and that were not included until now in the so-called ‘green taxonomy’ of the European Union, a way for investors and companies to differentiate which projects affect the climate and the environment, while it has proposed a community regulation of sustainable rating agencies (ESG).
This package, consisting of specific amendments to the EU Climate Taxonomy delegated act to expand the list of ‘green’ economic activities and a regulation to improve the reliability of ESG assessment activities.
Furthermore, this latest proposal made sustainable collateral providers offering services to investors and companies in the EU authorized and supervised by the European Securities and Markets Authority (ESMA).
Both measures are intended to build and strengthen the foundations of the sustainable financing framework of the EU and the Capital Markets Union, Mairead McGuinness.
The delegated act approved this Tuesday offers an additional set of technical selection criteria to define activities that contribute substantially to one or more of the environmental objectives. Specifically, 12 new activities are included that cover six sectors: transport, manufacturing; disaster risk management; water supply, sewerage and waste management; information and communication and professional, scientific and technical activities.
Brussels considers that the inclusion of more economic activities that cover the environmental objectives by the EU and, consequently, more economic sectors and companies, harm the usability and the potential of the green taxonomy to increase sustainable investments in community land.
Requirements for ESG Ratings
On the other hand, the proposed regulation to guarantee the best functioning of the ESG ratings market and increase the confidence of investors and companies, introduces a series of requirements on the activities of providers of this type of ‘rating’.
Firstly, ESG assessment providers offering services to investors and companies in the EU must be authorized and supervised by the European Securities and Markets Authority (ESMA), which will ensure the quality and reliability of their services. to protect investors and ensure market integrity.
The proposal also requires ESG rating providers to use rating methodologies that are rigorous, systematic, objective, and subject to validation, to ensure the quality and reliability of ESG ratings. These methodologies should be reviewed on an ongoing basis and at least annually.
The new rules will also introduce organizational requirements that ensure the prevention and mitigation of potential conflicts of interest, so that ESG rating providers must ensure that they provide ratings that are independent, objective and of adequate quality.