The European Securities and Markets Authority (ESMA) carried out a consultation and subsequent study of the operation of the ESG ratings market in the European Union (EU). This is part of the EU commitment to promote the Strategy for Financing the Transition to a Sustainable Economy.

ESMA received a total of 154 responses and found 59 ESG rating providers currently active in the EU, including MSCI, Morningstar/Sustainalytics, ISS, S&P and Moody’s/VE.

The study’s conclusions highlight that the structure of the market shows that there are a small number of very large providers from outside the EU, and a large number of significantly smaller EU entities. Users of ESG ratings often purchase these products on the basis that the investor pays multiple providers simultaneously, this is because they seek to increase coverage, either by asset class or geographically, or to receive evaluations of a different nature. Entities covered by ESG ratings devote at least some level of resources to their interactions with rating providers.

On the other hand, the majority of respondents highlighted some degree of deficiency in their interactions with rating providers, especially with regard to the level of transparency regarding the basis of measurement, response times, correction of errors or lack of coverage of a sector.

ESMA stated that the information received is indicative of an immature but growing market and that it will continue to support the EU in its assessment of the need to introduce regulatory protections for ESG ratings.