Insurance Europe, the European insurance and reinsurance federation, has welcomed the European Commission proposal to improve the availability, integrity and transparency of environmental, social and governance (ESG) rating activities.
According to the firm, the planned introduction of regulatory standards for rating activities should improve the quality of information on ESG ratings, and also address existing shortcomings in the ESG rating market.
However, in their consultation response the deadline of which ends September 4 2023 , Insurance Europe has set out a number of areas of improvements to the EC proposals.
The first area is to include raw ESG data products in the scope of the Regulation. In addition to ESG ratings, ESG data is equally important to support sustainable investment strategies and manage risk.
Secondly, Insurance Europe suggests that it is wise to include the entire group of ESG rating providers in the regulation, which the firm explains will help avoid possibilities for circumvention in the involvement of third parties, in particular in the dissemination of ESG ratings and ESG data via licensing agreements with unregulated group companies.
Next is disclosure requirements, where disclosure obligations must apply in full, regardless of whether the user receives the rating directly from the ESG rating agency, an affiliated company or a third party.
Moving on, the next area of improvement suggested by Insurance Europe is to ensure non-discriminatory access to ESG ratings, including for private investors. Ultimately, this access will allow investors to have more insights into ratings and enable smaller institutional investors and retail investors to better include ESG ratings in their investment decisions.
Next up, Insurance Europe argues that the EC proposal lacks a clear definition of financial products.
Moreover, Insurance Europe suggests that the implementation deadlines and transitional periods should be chosen so that it is possible for both EU & non-EU agencies to set up the necessary, legal organisational structures.
And lastly, Insurance Europe highlights that the ESG ratings and data market already consists of a few large players alongside smaller specialised companies. But, the firm suggests, that to avoid a similar market concentration seen in credit ratings, the regulation should not impose price restrictions, which ultimately would lead smaller/new companies to consider that an investment in such a data and model structure would not be worthwhile.
