EU puts environmental rating firms on notice as major overhaul planned

Introduction of formal rules marks a huge shift for an industry that been instrumental in steering vast sums of capital into investments despite the absence of meaningful regulatory oversight

In its draft proposal, the EU said 'the current ESG rating market suffers from deficiencies and isn’t functioning properly'. As a result, 'confidence in ratings is being undermined', it said. Picture: Michael Mac Sweeney

After years of unfettered growth, the providers of environmental, social, and governance (ESG) ratings will soon have to adjust their businesses to comply with new regulations or face hefty fines if they fail to comply, according to a draft document seen by Bloomberg News.

The draft legislation to be proposed by the European Commission next week, means providers of ESG ratings that also offer other financial services will be forced to keep those businesses separate to avoid conflicts of interest.