ESG rating agencies should be regulated in the interests of sustainable financial markets
The German Insurance Association (GDV) is in favor of regulating ESG rating agencies in a consultation with the European Securities and Markets Authority (ESMA).
Environmental protection, social aspects and responsible corporate governance ESG criteria are playing an increasingly important role in the financial industry. But how ecological or social is an undertaking? To bundle and simplify existing information, investors in capital markets such as insurers are increasingly using ESG ratings and assessments. These are determined by highly specialised ESG rating agencies. Investors can buy this rating information - very similar to the well-known credit ratings - and base their investment decisions on it. Also, with increasing requirements for ESG information in regulation, reliable and available rating data are becoming increasingly critical.
Unfortunately, the information provided by ESG rating agencies is not very comparable so far. There is no real market transparency. An increasing concentration of ESG rating agencies to the point of an oligopoly is also leading to rising transaction costs from the investor's point of view, even though the opportunity/risk profiles of the investments themselves do not change. The result of both factors is that the market for sustainable investments cannot develop optimally. For this reason, GDV considers the regulation of European ESG agencies to be necessary.
Our detailed response to ESMA's consultation can be found here: