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ESMA’s New Oversight on ESG Rating Provider
The European Securities and Markets Authority (ESMA) is set to assume direct supervision over ESG rating providers operating within the European Union (EU), following the adoption of Regulation (EU) 2024/3005 of the European Parliament and of the Council. This regulation aims to enhance the transparency, reliability, and comparability where possible, of ESG ratings, addressing growing concerns about inconsistent methodologies and potential greenwashing.
In line with Regulation (EU) 2024/3005, the regulation applies to any entity that professionally issues, publishes, or distributes ESG ratings within the EU. This ratings of companies, bonds, indices, and other financial instruments. Both EU-based and non-EU providers are covered if their ratings are made available to EU investors or issuers. To support smaller players, a temporary regime for small providers introduces proportionate obligations to ease compliance. For third-country providers, access to the EU market will require either ESMA recognition, endorsement through an EU-authorised provider, or reliance on a temporary regime provided under Article 12.
Excluded from the scope are:
The new ESG ratings regime is closely integrated into the EU’s broader sustainable finance agenda. It amends the SFDR by requiring disclosure of in-house ESG ratings on the same basis as those from specialised providers. Positioned alongside the SFDR, EU Taxonomy Regulation, and CSRD, the framework is designed to work cohesively: company sustainability reports feed data into ratings, funds rely on ratings for SFDR disclosures, and the Taxonomy defines sustainable activities. Together, these measures aim to ensure reliable ESG ratings that direct capital flows toward Europe’s green objectives.
By enforcing rigorous disclosure requirements, standardised methodologies, and strict governance and conflict-of-interest policies, this regulation will help prevent misleading or exaggerated ESG claims, commonly known as greenwashing. Investors and stakeholders will have greater confidence that ESG ratings accurately reflect the sustainability performance of companies and financial products. Financial institutions, however, remain responsible for ensuring their products do not engage in greenwashing, even when relying on authorised ESG ratings or distributed ESG information
ESMA is currently consulting on the draft Regulatory Technical Standards (RTS) under the ESG Rating Regulation. The consultation period was open until 20 June 2025, with the final report and submission of the draft RTS to the European Commission expected by October 2025. Once adopted, these RTS will detail the practical steps for firms to comply (e.g. templates for registration, COI policies, disclosure formats).
The introduction of Regulation (EU) 2024/3005 creates a strong opportunity for both financial institutions and rating providers to enhance transparency and build trust in sustainable finance. By mandating clear disclosure of methodologies and ensuring comparability of ESG ratings, the regulation will not only protect investors from greenwashing but also strengthen market confidence. This opens the door for innovative rating models, greater alignment with the EU Green Deal, and improved access to sustainable investment flows. For businesses and investors alike, the regulation presents a chance to differentiate through credible ESG practices and leverage enhanced ratings to attract capital and drive long-term value.
The adoption of Regulation (EU) 2024/3005 represents a pivotal step in advancing sustainable finance by ensuring integrity, transparency, and reliability in ESG rating activities. By harmonising standards across the Union and placing ESMA at the centre of supervision, the regulation addresses long-standing issues of inconsistency and opacity. Ultimately, this framework not only safeguards investors and consumers from greenwashing but also fosters a more efficient and trusted ESG market. For stakeholders across the financial ecosystem, it sets the foundation for a resilient and accountable sustainable finance landscape.
