Sustainable finance

7 areas for improvement: insurance industry responds to European Commission's ESG proposals


Insurance Europe has welcomed the European Commission proposal to improve the availability, integrity and transparency of environmental, social and governance (ESG) rating activities. The planned introduction of regulatory standards for rating activities, it argues, should improve the quality of information on ESG ratings and address existing shortcomings in the ESG rating market.

However, in its consultation response the deadline of which ends 4 September 2023 , Insurance Europe set out seven areas of improvements to the EC proposals:

1. Include raw ESG data products in the scope of the Regulation — as well as ESG ratings, ESG data is equally important to support sustainable investment strategies and manage risk. There is a need for common standards and binding requirements to ensure the quality of ESG data products, ensure reliability and comparability.

2. Include the entire group of ESG rating providers in the regulation — this 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.

3. Disclosure requirements — 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.

4. Ensure non-discriminatory access to ESG ratings, including for private investors — This 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 and, for example, demand rating information on investment platforms.

5. Clear definition of “financial products” — The EC proposal lacks a clear definition of financial products. It only requires that where an ESG rating relates to a financial product, the ESG rating provider meets the regulation's requirements, without defining financial products.

6. Transitional provisions — The implementation deadlines and transitional periods should be chosen so that it is possible for EU and non-EU agencies to set up the necessary, legal organisational structures.

7. Risk of market concentration with oligopolistic structures — The ESG ratings and data market already exhibits a few large players alongside smaller specialised companies. To avoid a similar market concentration seen in credit ratings, the regulation should not impose price restrictions, which would lead smaller or new companies to consider that an investment in such a data and model structure would not be worthwhile.