The Future of Sustainable Data Alliance (FoSDA) is a multi-member alliance seeking to enable the power of capital markets to tackle global environmental and social challenges through comprehensive and high-quality data and analytics.
FoSDA members are drawn from the sustainability data, analytics, ratings, research, and index providers that empower investors, companies, and governments to achieve their sustainability goals.
FoSDA appreciated the opportunity to respond to ESMA’s consultation on the technical standards under the Regulation on the transparency and integrity of ESG rating activities.
We made the following broad points in our response – which is provided in full below.
- The standards should avoid being prescriptive wherever possible and should enable regulated entities to adhere to the regulation in a principle-based and flexible manner. It is important to take account of the nascent nature and diversity of ESG rating markets when finalising Level 2 requirements. ESMA should align closely to the Level 1 text of ESGRAR to avoid creating additional administrative burdens which were not contemplated by the co-legislators. It is important to understand the cost implication and impact on competition of detailed requirements such as those proposed on ownership and business structure disclosures. A more proportionate approach would support innovation and competition.
- In some places, the technical standards introduce new requirements that were not included in the Level 1 text. These extensions should be withdrawn because they would introduce disproportionate burdens on market participants with damaging effects on innovation and competition.
- We are also concerned that certain aspects of the disclosure requirements may lead to information overload, creating confusion rather than clarity. This contradicts the European Commission’s broader ambition to reduce administrative burdens associated with regulatory reporting. Rather than easing the reporting burden, the level of detail required under certain proposals (such as those relating to Rated Entity Notifications) risks overwhelming both ESG rating providers, rated items, and end-users with requests for information that ultimately are not decision-useful.
FoSDA’s response from June 2025
Do you agree with ESMA’s proposals for the draft technical standard under Articles 6(3) and 12(9)?
The Future of Sustainable Data Alliance (FoSDA) welcomes the opportunity to respond to ESMA’s Consultation Paper on Technical Standards under the Regulation on transparency and integrity of Environmental, Social and Governance (ESG) rating activities (Regulation (EU) 2024/3005, “ESGRAR”).
FoSDA is a membership organisation representing the sustainable information ecosystem. FoSDA’s mission is to enable the power of financial markets to tackle global environmental and social challenges through high-quality data and products.
This response contains a subset of issues that FoSDA’s Policy and Regulatory Working Group agreed were worthy of mentioning. It does not contain an exhaustive list of all the issues considered material to working group members and should not be taken to indicate that every member of the working group agrees with all the points raised in this response.
FoSDA welcomes the approach by ESMA in its draft technical standards under Articles 6(3) and 12(9). However, as a general point, FoSDA believes that it is important for ESMA to take account of the nascent nature and diversity of ESG rating markets when finalising all Level 2 requirements under ESGRAR. We therefore urge ESMA to align closely to the Level 1 text of ESGRAR to avoid creating additional administrative burdens which were not contemplated by the co-legislators. In order to further support innovation and further diversity in the market, the RTS should avoid being prescriptive wherever possible and enable regulated entities to adhere to the regulation in a principle-based and flexible manner.
For example, Part D of Annex II would require “A chart showing the ownership links between any parent undertaking, subsidiaries and any other associated entities”. However, such a requirement could entail charting a large number of irrelevant entities which have no link to the activity.
Annex I of ESGRAR only requires that an application for authorisation include:
“(d) the ownership structure of the applicant;
(e) the identity of entities within the ownership structure of the applicant that will provide ESG ratings or any of the activities listed in Article 16(1);”
We would therefore suggest that the draft RTS be amended to only require applicants to provide a chart on the “ownership structure of the applicant”, “entities within the ownership structure of the applicant that will provide ESG ratings”, and “entities that will provide any of the activities listed in Article 16(1)”. This would ensure the Level 1 and Level 2 texts are aligned and avoid the need for massive amounts of disclosure of irrelevant corporate entities.
References to “any other associated entities” in Part D paragraph 4 should be deleted as it is not clear what these terms mean. A broad interpretation of “associated entities” would capture almost any entity in the ownership structure of a group. This could amount to hundreds or even thousands of entities which have no relationship or links to the entity seeking an authorisation under ESGRAR. With the removal of Part D paragraph 4, Part D and Part E could then be combined.
In terms of a benchmark, under the authorisation application for the EU Green Bond Standard, External Reviewers are only required to provide the “ownership structure of the applicant” without being required to identify parents and subsidiaries.
Equally, Part G paragraph 2 of Annex I would require the applicant to provide the following information for all staff that are “rating analysts, employees and other persons working for the applicant who are directly involved in ESG rating activities”:
- a) Name;
- b) role;
- c) type of contract [temporary or permanent];
- d) years in the role;
- e) years in the industry.
However, the Level 1 text of ESGRAR does not require this information and it would require significant resources to compile. Moreover, EGRAR is a new regulated activity and the relevance of the information requested in paragraph 2 of Annex I is questionable. Annex I of ESGRAR Level 1 only requires the number of “rating analysts, employees and other persons working for the applicant who are directly involved in ESG rating activities”. It does not require the five additional line items per employee as set out in the ESMA draft. FoSDA believes that the number and backgrounds of senior staff “directly involved in ESG rating activities” should suffice and would be more proportionate and in line with Level 1.
In addition, some providers offer ESG scores that do not involve rating analysts in the determination of an individual rating. Since Level 1 distinguishes between rating analysts and other persons (see e.g. Article 17), it is important to ensure consistency with that wording so that providers clearly understand what information is being requested and can respond “not applicable” where relevant.
In respect of part I, we suggest alignment with the underlying regulation which requires, in Article 15.8, the regular review of methodologies but not of individual ratings (as implied in part I, section 2 of the draft RTS) or of models and key rating assumptions (as implied in section 3). We therefore suggest deletion of section 2, or at the least a specification that this requirement only applies to monitored ESG ratings. In section 3, we suggest deletion of the references to models and key rating assumptions.
Do you agree with ESMA’s proposals for the draft technical standard under Article 16(5)?
We disagree with ESMA’s proposal in Article 1(b) of the draft RTS in relation to the separation of business and activities, of mandating “physical separation measures that provide for segregated office space and secure access for employees and other persons directly involved in the assessment process of a rated item”. This proposal introduces a substantially new requirement that is not supported by the underlying legislation and exceeds ESMA’s mandate for RTS.
ESGRAR includes a range of provisions designed to ensure the independence and impartiality, as well as the rigour and quality, of ESG ratings. As set out in Recital 38 of the Regulation, these include specific conflict of interest requirements, detailed in Article 25, as well as legal separation. This is a comprehensive set of measures that puts the onus on ESG rating providers to ensure their structures allow for the effective management of conflict of interests. Such structures might include different forms of operational segregation, but should be dependent on the entity and its specific circumstances.
We also note that ESMA’s mandate to develop RTS in respect of the separation of business and activities, as set out in Article 16.5, does not extend to paragraph 1 of the same Article. It only pertains to the derogation as set out in paragraphs 2, 3 and 4. We therefore suggest ESMA delete all of Article 1 of the draft RTS.
Do you agree with ESMA’s proposals for the draft technical standard under Articles 23(4) and 24(3)?
FoSDA members are concerned that the disclosure requirements in Articles 3 and 4 of the proposed RTS are ultra vires. Some of the proposed provisions stipulate additional disclosures, rather than serving the purpose of further elaborating “the data standards, formats and templates” as envisaged in the Level 1 text. This is particularly alarming in light of the specific requirement in Article 23(4) as regards disclosures to the public, which mandates that the RTS “…shall not include any additional disclosure requirements other than those listed in point 1 of Annex III.”.
RTS Article 3
FoSDA suggests the deletion of both points (a) and (a)(i)-(v) in Article 3 (1(a)) as regards classification of the entity/rated item. Contrary to the drafting in RTS Article 3(1), these data points are not stipulated in Annex III, Point 1(f), which refers merely to:
“(f) information on the ESG rating’s clearly defined objective and marking whether the rating is assessing risks, impacts, or both, according to the double materiality principle, or any other dimensions, and in the case of double materiality the proportion of the risk and impact materiality;”.
Moreover, public disclosure of these data points, alongside the data sources and the methodologies, would significantly harm the commercial viability of ESG ratings, as it would expose nearly all of the components of a rating to the public. Disclosure of the identity of the rated items should be strictly limited to:
Users of ESG ratings (who need to know who the rating refers to) and ESMA (for supervisory purposes).
Rated items themselves, who will be informed of key information under the provisions of the Level 1 text under Article 24.
Furthermore, standardised and categorised entity data is in itself a commercial data product. While the underlying information is usually available in the public domain, standardising and classifying such data in a machine-readable format represents commercial value. This would also entail the addition of significant costs to ESG rating providers to obtain and make use of this entity level categorisation data.
We are therefore concerned that requiring public disclosures of entity-type classifications contradicts the provisions set out in the Level 1 text under Article 15(13), which states that “ESG rating providers shall not be obliged to disclose information about their intellectual capital, intellectual property, know-how, or the results of innovation that would qualify as trade secrets”.
In general, we are concerned that certain aspects of the disclosure requirements under Articles 3 and 4 of the draft RTS may lead to information overload, creating confusion rather than clarity. This contradicts the European Commission’s broader ambition to reduce administrative burdens associated with regulatory reporting, which ESMA has also supported in other areas of sustainable finance legislation. Rather than easing the reporting burden, the level of detail required under certain proposals risks overwhelming both ESG rating providers, rated items, and end–users with information that ultimately is not decision-useful.
Finally, publicly disclosing detailed information on rated items risks inadvertently disclosing non-public information in a manner that could be “specific enough to enable a conclusion to be drawn” in the meaning of Article 7(2) of the Market Abuse Regulation (MAR). For example, where a rating has been requested by a company that is preparing to issue debt or raise equity financing, or in other cases where an investor intends to undertake due diligence on a target company prior to investing. Disclosure of detailed information as foreseen in letters 3(a) and 3(a) (i)-(v) could be sufficient to lead to a risk of frontrunning.
For these reasons, we urge ESMA to delete Article 3(1(a) along with points (i)-(v) in Article 3 (1(a)).
RTS Article 4
Not all disclosures stipulated in Article 4 will be relevant to all ESG rating products. FoSDA therefore suggests adding “where relevant” in Article 4(1) and removing Article 4(1(e)). ESMA should avoid a “one-size-fits-all” in light of the fact that methodologies across providers differ widely in scope, time horizon, data inputs, and assessment models.
Paragraph 1(e) as regards “how major new information is taken into account in the methodology” is ultra vires for this RTS, as the Level 1 text foresees this disclosure to be made to users, not to the public. Specifically, this information is included as disclosable to users as per Annex III 2(b(f)). We suggest ESMA remove this data point from public disclosures under Annex III paragraph 1.
RTS Article 5
We are concerned that the proposed disclosures exaggerate the limitations of data sources, methodologies and information. Also, by requiring considerations in respect of each of the five sub-sections identified by ESMA, they would likely lead to boilerplate language. In contrast, the text of the underlying regulation is more outcomes-focused and more likely to encourage meaningful disclosures in its current form, without further specification.
RTS Article 6
FoSDA suggests limiting ownership and group structure disclosures to where this is materially relevant to the provision of ESG ratings. As above, the proposed disclosures in Article 6(2)(a) and (b) of the draft RTS are not foreseen in the Level 1 text and would result in ESG rating providers disclosing information that is neither relevant nor decision-useful to end-users.
For instance, again as noted above, the RTS do not provide an explanation of what qualifies as an “associated entity” for the purposes of Article 6(2)(b). Particularly where ESG rating providers are part of large, complex, or multinational organisations with business lines entirely unrelated to ESG ratings, disclosures could become wide and complex. Again, this proposed requirement appears to have no clear basis in the Level 1 text.
Specifically, we suggest the following drafting change to Article 6(2):
- As part of the information disclosed in accordance with Annex III, point 1, letter (d), of Regulation (EU) 2024/3005, ESG rating providers shall include the following:
(a) where the ESG rating provider is part of a group, a description of the group’s legal status and registered office;
(b) a chart showing material ownership links with any parent undertaking, subsidiaries and any other entities which perform any activities or services listed in Article 16 of Regulation (EU) 2024/3005, where relevant.
These amendments are necessary to avoid disclosure of potentially very large and complex ownership information that is neither proportionate to the requirements in Annex III (1), nor of demonstrable benefit to end-users.
In respect of Article 6(3), we consider that the proposed disclosures go well beyond the “general information on criteria used for establishing fees charged to clients” that is envisaged in the underlying regulation. We do not think any of the proposed requirements are necessary. Importantly, subsection (c) would require the disclosure of commercially sensitive information and we suggest ESMA remove this requirement in particular.
Do you consider that the draft technical standards under Articles 23(4) or 24(3) should instead provide an expanded table in Annex proposing a sequence and structure for all disclosures to be made under parts 1 and 2 of Annex III? If yes, please explain the benefits of such an approach.
In line with our opening comments, we believe that the RTS should seek to be principle-based and flexible in terms of their application. We therefore do not support ESMA prescribing the sequence or structure for the disclosures to be made under Parts 1 and 2 of Annex III.
Q5 Do you agree with ESMA’s proposed cost benefit analysis? If not, please explain.
We believe that the extra disclosure requirements and separation measures included in the RTS represent far more cost than is described in the cost-benefit analysis. These measures go beyond the Level 1 text and therefore represent a significant material cost for the industry to implement. Again, steps should be taken to ensure that the Level 2 texts do not go beyond the mandate provided for in the Level 1 to avoid the introduction of additional unforeseen costs.
For example, in requiring the disclosure of the name of the rated item or issuer, there is an explicit cost (in producing an extra disclosure for each rated item or issuer) and an implicit cost (the reduction in the commercial viability of the product implied by revealing commercially valuable information) that are not accounted for in the cost-benefit analysis. Similarly, the physical and operational separation measures that are described in the RTS go beyond what is required at Level 1.
These costs are significant for an industry that is still developing and operates with relatively low fees and profitability. It is therefore important that the RTS do not impose unnecessary requirements which could limit the market’s ability to grow, provide services that meet the needs of clients and continue to innovate.
