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EU proposal to integrate ESG factors into credit ratings

What has happened?

In response to the European Commission’s request last year, ESMA has launched its consultation on proposals to integrate ESG factors in credit ratings and to improve transparency in respect of the inclusion of ESG risks in credit ratings and rating outlooks. To do this, the proposals amend Annex I of the Regulation 1060/ 2009 on Credit Rating Agencies (the CRA Regulation) and (EU) Delegated Regulation 447/2012 on the demonstration of compliance of credit rating methodologies (the Delegated Act).

The key proposals include:

CRA Regulation

  • integration into the CRA Regulation of transparency provisions applicable to the disclosure of ESG considerations which are currently contained in ESMA’s Guidelines on Disclosures; and 

Delegated Act

  • introduction of specific references to the ESG factors, to ensure incorporation in the credit rating methodologies that are relied on for determining creditworthiness

These proposed amendments are supported by:

CRA Regulation

  • obliging credit reference agencies to validate credit rating methodologies, by assessing the input data used by the methodologies and to disclose the validation process; 

Delegated Act

  • addition of reference to “rating outlooks”, which means an opinion regarding the likely direction of a credit rating over the short term, the medium term or both, wherever the term credit rating is used, to treat their relevance at par with each other and to align with the CRA Regulation; and 
  • establishment of the principle of what constitutes “methodology” and the most common elements of a methodology that are relevant to the creditworthiness assessment.


For more information, you can read the consultation paper and press release.


Timing and next steps for the CRA Regulation

The deadline for the submission of responses to ESMA’s consultation paper is 21 June 2024. ESMA will then consider all feedback received and submit its technical advice to the European Commission by end December 2024


Contrast with the EU's ESG Ratings Regulation

Integration of ESG considerations into the credit ratings framework sits alongside EU developments in respect of ESG ratings. In February 2024 the EU co-legislators reached political agreement on the ESG Ratings Regulation (“ERR”). The ERR expressly exempts from scope credit ratings issued pursuant to the CRA Regulation and any ESG-related scores or assessments that are produced or published as part of the methodologies for credit ratings or as an input or output of the creditworthiness assessment (read our note or catch up with our webinar recording here).


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