- within Compliance and International Law topic(s)
The ESG Ratings Regulation (Regulation (EU) 2024/3005, the "ESG Ratings Regulation") will apply from 2 July 2026 (having been published in the Official Journal of the European Union on 12 December 2024). It constitutes a significant development in relation to environmental, social and governance ("ESG") rating activities.
As sustainable investing gains prominence globally, ESG ratings play an increasingly central role in the sustainable finance ecosystem. The ESG Ratings Regulation aims to increase transparency and confidence in sustainability-related information by introducing a mandatory framework for providers of ESG ratings. Until now, ESG rating activities were not subject to any EU-wide regulation, creating discrepancies in methodologies and risks of greenwashing.
Who should be interested in the ESG Ratings Regulation?
In-scope providers of ESG ratings will need to ensure compliance with the ESG Ratings Regulation. Various other stakeholders are indirectly impacted, including current and prospective issuers of financial instruments (including bonds) which rely to any extent on ESG ratings, as well as investors, arrangers and underwriters.
You can read more about the ESG Ratings Regulation in our prior briefing of January 2025.
Recent Developments
In anticipation of the application of the ESG Ratings Regulation from July 2026, the European Securities and Markets Authority ("ESMA") was mandated to prepare regulatory technical standards (the "ESG Ratings RTS") providing more details to stakeholders on both the application process for prospective ESG ratings providers and on certain aspects of its supervisory expectations for supervised entities. The draft ESG Ratings RTS were published in a consultation paper on 2 May 2025, feedback was provided by relevant stakeholders and on 15 October 2025, ESMA published its Final Report and subsequently submitted each of the draft ESG Ratings RTS to the European Commission for adoption in the form of three draft Delegated Regulations. The European Commission has three months to decide whether to endorse the draft ESG Ratings RTS and adopt them. If adopted, the ESG Ratings RTS will be subject to non-objection by the European Parliament and the Council of the EU.
The draft ESG Ratings RTS provide the relevant detailed information requirements for applications for both (i) authorisation to become an EU ESG ratings provider; and (ii) recognition for third country ESG ratings providers.
Once authorised, there are various governance, transparency, conflict of interest and methodology requirements that will apply. A key requirement of the ESG Ratings Regulation is the "separation of business and activities" whereby in general and subject to limited exceptions, ESG ratings providers cannot engage in activities regarding consulting, credit ratings, audit or assurance, investments, banking, insurance, reinsurance and / or benchmarks. The draft ESG Ratings RTS provide more details on the measures and safeguards that should be put in place to satisfy the "separation of business and activities" requirement and it is noteworthy that, following the public consultation, the requirement for physical separation of staff remains.
Another key requirement of the ESG Ratings Regulation is the obligation on the ESG ratings provider to publish on its website prescribed information pertaining to the methodologies, models and key rating assumptions used and again, the draft ESG Ratings RTS provide greater detail on the disclosure requirements. Following the consultation process a number of disclosure elements have been revised in order to ensure they are practically achievable, while others have been removed where ESMA concluded such disclosures did not provide sufficient added value to justify the burden on ESG ratings providers.
Getting Ready
ESMA has significant powers of supervision in relation to compliance with the ESG Ratings Regulation, such as the power to carry out on-site inspections, withdraw or suspend the relevant provider's authorisation, and issue public notices or impose fines. It is therefore incumbent on in-scope providers to assess the impact of the ESG Ratings Regulation and the draft ESG Ratings RTS in detail to ensure applicable governance, transparency and methodology processes are updated in good time ahead of the entry into force of the ESG Ratings Regulation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
