Do the EU’s new ESG rules make ratings more reliable?

(Transport and Environment, 8 Mar 2024) The EU can now better regulate ESG ratings, but they are still far from perfect.

In the words of former European Central Bank President Mario Draghi, the EU needs to invest an “enormous amount of money in a relatively short time” to deal with the environmental challenges it is facing. The former ECB’s President emphasised the need to mobilise private capital on top of public money.

Key to activating private funds is to ensure it goes in the right places. Last month the European negotiators reached a deal on how to regulate the ESG ratings market in the EU.The regulation has its shortcomings but this undoubtedly marks a first step in the right direction. 

At present, ESG ratings have the potential to steer capital flows towards sustainable investments, but they just are nowhere near portraying a credible picture of companies’ sustainability performance. 

Heavy polluting oil and gas and transport companies still obtain ludicrously high scores, despite their poor track record on environmental and social matters.

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Transport and Environment, 8 Mar 2024: Do the EU’s new ESG rules make ratings more reliable?