ESMA Consultation Paper on RTS under the ESG Ratings Regulation

On 2 May 2025, the European Securities and Markets Authority (“ESMA”) published a Consultation Paper on regulatory technical standards (“RTS”) under the ESG Ratings Regulation (“ESGRR”).

It contains draft RTS on:

• applications for authorisation and recognition of ESG ratings providers (“Authorisation and Recognition RTS”);
• measures and safeguards that should be put in place to mitigate conflicts of interest in separating business and activities other than the provision of ESG ratings (“Separation of Business RTS”); and
• information to be disclosed by ESG rating providers to the public, rated items, issuers and users of ESG ratings (“Disclosure RTS”).

Authorisation and Recognition RTS

Under the ESGRR EU firms may apply for authorisation as an ESG ratings provider under Articles 6-8, and non-EU firms may apply for recognition under Article 12. ESMA has decided to address the information required for both in one RTS. The common information required for both types of applications are set out in Annex II, with Annex III providing for additional information required from firms applying for recognition.

The information required in each case is largely as expected, although firms considering either authorisation or recognition should consider the RTS in detail to assess whether the information is feasible to produce or obtain in advance of the relevant ESGRR deadlines.

Separation of Business RTS

A key provision of the ESGRR is the requirement that ESG ratings providers must not provide, in the same legal entity, consulting, credit rating, audit or assurance, investment, credit, insurance and benchmark services unless subject to a derogation.

In summary, the derogations mean that an ESG ratings provider may provide investment, credit, insurance and benchmark subject to stringent safeguards. The RTS provides details on these safeguards.

In addition, the RTS elaborates on the safeguards an ESG rating provider must put in place to ensure employees directly involved in the assessment process of a rated item do not provide consultancy, credit rating or audit activities (e.g. through a separate corporate entity).

The RTS specifies that ESG rating providers should (in summary):

• Implement organisational and physical separation measures for persons involved in the assessment process of a rated item do not undertake consulting, credit rating, audit or assurance, investment, credit, insurance and benchmark services.
• When providing investment, credit or insurance services implement organisational (and where relevant group level) information controls, training, contractual measures and compliance monitoring to ensure appropriate separation. These measures should then be reviewed at least annually, with that review subject to management body approval.
• When providing benchmark services ensure that compensation and performance evaluation is not affected by any potential risk of conflicts of interest between the benchmark and ESG rating activities. ESG rating providers must also ensure the production and offering of ESG rating products does not rely on mechanistic use of constituents or the output of a benchmark for which the ESG rating provider is an administrator. Actual and potential conflicts of interest must be assessed and documented before entering into a contract for the provision of services to a rated item, issuer or an investor with a client relationship.  

ESG ratings providers who intend to conduct other activities from their ESG rating provider entity, or conduct such other activities within their group, should carefully consider these requirements given they could require practical changes to reporting lines and roles and responsibilities.

Disclosure RTS

One of the core requirements of the ESGRR is transparency and disclosures on ESG ratings. These require ESG rating providers to make certain disclosures to the public, and certain disclosures to users, rated entities and issuers.

Whilst some disclosures are set out in Annex III of the ESGRR in some detail, ESMA clarifies that it views the RTS as providing information supplementary to that. Hence, the RTS proposes certain information disclosures, but does not specify further information for all provisions in the ESGRR where ESMA views the Level 1 obligation as sufficient. The RTS also suggests a common sequence for disclosures under Part 1 of Annex III of the ESGRR, but not Part 2. But, perhaps anticipating how this may be confusing, ESMA has asked for feedback on whether it would be better to provide an expanded table proposing a sequence and structure for all disclosures to be made under Annex III. Overall, this means the RTS needs to be read quite carefully in combination with the ESGRR itself to ensure all disclosures have been made in a compliant manner.

Finally, whilst certain exemptions in the ESGRR (essentially for firms disclosing an ESG rating as part of another EU regulated financial product or service) require additional disclosures under Annex III of the ESGRR, ESMA does not address this in the Consultation Paper. Given ESMA’s Consultation Paper clarifies that the Disclosure RTS requirements are additional to rather than an elaboration of Annex III, and the mandate for the RTS is technically based on Articles 23 and 24 rather than Annex III directly, it appears that this RTS is not relevant to firms relying on such exemptions. However, firms may query this as part of their feedback to ESMA on the RTS.

Next Steps

The consultation is open until 20 June 2025.

ESMA will consider the feedback on the consultation, and expects to publish a Final Report in Q4 2025 so that the draft RTS can be submitted to the EU Commission by the end of October 2025. This will leave limited time for firms to digest the final rules in advance of the 2 July 2026 application date of the ESGRR.