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11 - Information Intermediaries and Sustainability

The Case of ESG Ratings and Benchmarks

from Part III - Integrating Sustainability in Financial Markets Regulation

Published online by Cambridge University Press:  30 January 2025

By
Matteo Gargantini  and
Michele Siri
Edited by
Kern Alexander ,
Matteo Gargantini  and
Michele Siri
Kern Alexander
Affiliation:
University of Zurich
Matteo Gargantini
Affiliation:
University of Genoa
Michele Siri
Affiliation:
University of Genoa
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Summary

The relatively new world of ESG indicators displays many similarities with the original markets for ratings and benchmarks, but it also has some distinguishing features. This chapter explores to what extent the regulatory strategies that were developed in ‘traditional’ financial law to support confidence in ratings and benchmarks can be exported to the ‘new’ world of ESG finance, and concludes that policymakers should be cautions when transposing rules. This is especially the case with ESG ratings. In this area, credit ratings are the immediate reference for ESG rating regulation also, because of the common label of ‘rating’, which is rather misleading, and of the anchoring effect this entails. First, the assessments underlying ESG ratings are often more subjective than those supporting traditional indicators, due to their multivariate nature. Second, the risk of regulatory failures connected to the authorisation and registration labels also seems higher in the ‘new’ world of sustainability. The chapter analyses the new ESG Ratings Regulation and the Benchamkr Regulation against this backdrop, and highlights the suboptimality of some policy choices.

Keywords

ESG ratingsESG indexes and benchmarksinformation intermediariesmarket failuresoverreliancedisclosure and labellingauthorisation systemcredit ratingsfinancial analysts
Type
Chapter
Information
The Cambridge Handbook of EU Sustainable Finance
Regulation, Supervision and Governance
 , pp. 280 - 316
Publisher: Cambridge University Press
Print publication year: 2025

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