ESG
Providers will need to create clear rules for managing their methods and set up controls for handling changes and complaints.
Geoffroy adds that the regulatory technical standards go well beyond high-level principles.“ Ultimately, the new regulatory regime is not a compliance overlay but a redesign of the operating model for ESG ratings providers,” he says.
“ Those that manage to turn transparency into a product feature and make their methodologies, assumptions and data limitations part of the value proposition itself will manage to stand out from the rest.”
However, transparency does not mean everything will be fully standardised.
“ While the new regulatory regime will definitely improve transparency
and discipline, I would be careful about presenting it as full standardisation,” Geoffroy says.“ The regulation requires far greater disclosure of methodologies, data sources and assumptions, but it does not prescribe what ratings should measure or how different ESG factors should be weighted.
“ As a result, divergence between providers is unlikely to disappear. A company may still receive a strong ESG rating by one provider and a much weaker rating by another, because the underlying methodologies may reflect different materiality lenses, time horizons or views on risk versus impact.
“ Ratings will hence be auditable and explainable opinions, but will not be scientifically standardised facts. What changes is that these opinions will become easier to scrutinise, which is particularly crucial for asset managers with strong sustainability credentials and sustainability-minded investors.
“ Blindly and passively relying on ESG ratings will no longer suffice, and a twolayer approach that combines a simple surface with a deeper evidential base is becoming both a regulatory expectation and a strategic necessity.”
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