Stockholm (NordSIP) – The French and Dutch financial market authorities, the Autorité des marchés financiers (AMF) and the Autoriteit Financiële Markten (AFM), have proposed the creation of a European regulatory framework for providers of sustainability-related services.
The framework would complement the sustainable finance legislation advancing through the EU’s legislative process, including the EU Taxonomy and the Green Benchmarks proposed by the High-Level Technical Expert Group (TEG).
“The sustainable investment market is growing rapidly, but its credibility depends largely on the quality and reliability of the ESG information used,” says Robert Ophèle, Chair of the Autorité des marches financiers. “It is with this objective in mind and to ensure investor confidence that we wish to propose with the AFM a European regulatory framework for ESG data and service providers. The construction of such a regulation should be put on the agenda of the renewed sustainable finance strategy and conducted collectively.”
According to the two national authorities, the new regulatory framework should aim to prevent the misallocation of investments and greenwashing. The proposal includes requirements on transparency on methodologies, management of conflicts of interest, internal control processes, and enhanced dialogue with companies subject to sustainability ratings.
AMF and AFM argue that the diversity of methodologies used by the various providers of sustainability ratings. Such a regulatory framework would make it possible to avert certain risks for investors, such as misallocation of investments or greenwashing. Given the diversity of methodologies used for sustainability ratings, greater data and methodological transparency would facilitate better comparability between providers and ensure that users share a common understanding of ESG performance.
In recent years, Europe has seen greater consolidation in the market for sustainability-related services. This could lead to higher risks of dependence upon a limited number of providers, higher prices and to the emergence of new potential conflicts of interest.
“We believe providers of sustainability-related services play a crucial role for investors in the market for sustainable finance,” says Laura van Geest, Chair of the Dutch Authority Financial markets. “Many investors depend on them in their investment decisions. Introducing minimum transparency and organisational requirements should greatly benefit this key part of the sustainable finance ecosystem. This joint AMF/AFM position paper aims at contributing to the debate on what regulation of ESG rating and data services providers should look like. We would like to invite regulators, market players, and other stakeholders to add their perspectives to this debate.”