What the new European ESG ratings framework changes

Since 2 July 2026, ESG rating providers operating in the European Union fall under a new regulation on the transparency and integrity of ESG ratings. It sets up an authorisation or registration regime and gives ESMA direct supervision. Two delegated regulations, published on 28 July 2026, detail the information providers must disclose on methodologies, data and products, and organise the separation between ESG rating activities and other activities. Anne Chanon of EthiFinance gave her view on Radio KPMG, in conversation with Isabelle Lhoste.

ESMA supervision: what the EU ESG ratings regulation changes for the market

ESMA authorisation, direct supervision and stronger governance requirements reinforce the framework for ESG rating agencies. Is this only a regulatory change, or a new stage in the maturity of the ESG rating market?

It is an important step, for two reasons.  

Symbolically, it shows that the regulator recognises the importance of sustainable finance and intends to oversee this market the way it oversees conventional finance.  

In practical terms, it sets out what is required to produce a robust rating and establishes rigorous safeguards. These safeguards are welcome news at a time of rapid innovation in the ESG ratings market.

ESG rating methodology: financial materiality vs double materiality

Agencies will have to say whether their ratings assess the ESG risks a company is exposed to, its impacts on the environment and society, or both, and explain factors, weightings, data and limits. Will this shift the debate from the score to what it actually measures?

I hope so. Before discussing a score, we need to understand what it measures: which topics it covers, which KPIs it uses and whether those indicators carry equal weight. Without that context, a score on its own means nothing.

There are different ways to measure non-financial performance. Simplifying a little, there are two main schools.

• US and Anglo-Saxon agencies focus only on financial materiality, meaning the environmental, social and governance issues that can affect a company's financial results. Only those issues are used to calculate a score.

• On the European side, double materiality is more common. It takes into account financial materiality and also the impacts companies may have on the environment or society. That is what we do at EthiFinance, and our scores reflect both realities.

By requiring agencies to be transparent about their starting point, simple or double materiality, the regulator allows market participants to understand what a score contains. Any agency wishing to operate in Europe must now make its ESG rating methodologies available online. Any investor, any rated company, any member of the public can access them.

ESG data quality: rating agencies and pure data providers

The regulation covers ESG rating providers, not players that sell ESG data only. Yet regulated agencies must now explain where their data comes from, how it is collected and which controls apply. Could the regulation raise the quality of ESG data by ricochet, and become a mark of trust for the whole market?

The regulation only covers agencies that issue ratings, not data providers that deliver data alone. Yet data is the cornerstone of a rating. It does not take a great expert to see that if the data is of poor quality, the rating will be of poor quality too.

For rating agencies, the regulator has set demanding transparency rules regarding data. A regulated agency must publicly explain:

• the sources and the nature of the underlying data it uses;

• its data collection and quality control processes, including whether or not AI is used;

• the models or algorithms it uses when some information is missing and has to be estimated.

In other words, even though data is not directly regulated, it is mechanically put under the spotlight. That should push regulated agencies to watch the quality of their data.

On the other side, pure data providers can keep delivering data without that transparency, or any particular guarantee on integrity and quality. That can be unfortunate for investors and for companies alike. We hope investors will be able to tell the difference and support quality.

Why one company can get different ESG scores from different agencies

Business leaders often ask how the same company can receive very different assessments depending on the agency. The regulation imposes no common methodology but demands transparency on methods, data and peer groups. Is the expected progress less the convergence of scores than a better understanding of their differences? And how do you tell a real change in the company from a change due to data or methodology?

Several questions in one, so several answers.

Different ESG scores for the same company are to be expected: agencies start from different assumptions, use different indicators and aggregate them using different metrics.

Rather than imposing a single methodology, the regulator has chosen to emphasise transparency and public scrutiny as a way to improve rigour and quality. This preserves a diversity of approaches and leaves room for innovation, both of which are essential to the continuous improvement of ESG rating methodologies.

A company's rating can change for several reasons. It may publish more data, or its performance may improve or deteriorate and be reflected in the data. These are changes driven by disclosure or performance. Where a methodological bias is responsible, the new transparency requirements will make that easier to identify and understand.

Separation of activities and conflicts of interest

The new framework provides for a strong separation between activities, with distinct responsibilities and reporting lines, information barriers, internal controls and conflict-of-interest prevention. For an agency like EthiFinance, what does this change in practice, and will it strengthen the trust of companies and investors?

These are requirements that have applied to financial ratings for several years. That is why I see their extension to non-financial ratings as a very positive signal for ESG Ratings legitimacy. It will align practices and strengthen trust.

We knew these requirements well at EthiFinance, because we are also a credit rating agency and, for that activity, have been regulated since 2013. It still took significant work, started more than two years ago and accelerated over the last 18 months. For instance, we had to:

• Change our business model, e.g. dropping advisory services, notably those delivered to issuers

• Create new legal entities to separate activities;

• separate offices and shared drives;

• rewrite and publish policies;

• appoint a compliance officer dedicated to ESG;

• update methodologies;

• publish information on shareholding and governance.

It is a big investment, but it seems to us both necessary and beneficial. And yes, for all regulated players, a clearer system behind the production of ratings should increase users' confidence in them.

What rated companies should do before the issuance of ESG rating

Before a rating is issued, the regulation lets the company see certain data used and flag a factual error. It also provides a complaint mechanism covering sources, methodology and more. Should companies manage their ESG ratings more actively?

Managing ESG ratings has always been important. At EthiFinance we did not wait for regulation to give companies access to their data before a rating is finalised. For years we have urged companies to read our methodologies, which have been public for years, to publish their key ESG data and to engage in dialogue with the agency.

Now every agency operating in Europe will have to do it, so we are moving up a gear. It matters even more for a company to be proactive on its ESG ratings, and very early. It starts before the notification, with the attention given to reporting: the more complete and clear it is, the better. Missing or unclear data can cost points. Companies should absolutely seize the possibility to check their data before the rating.

ESG ratings as a governance topic for the executive committee

For executives and executive committee members, when does an ESG rating become a genuine governance topic?

It is a governance topic because it is a lever for development and, as such, a strategic asset. Investors take it into account to define their investment universe, and to invest or divest in a company. The same goes for bankers, in the assessment of counterparties.

Looking after your non-financial rating is as important as looking after your credit rating. In a market where financing conditions are getting tougher, as they are now, paying attention to these ratings is strategic.

What a CEO should ask first when receiving an ESG rating

Put yourself in the place of a CEO who receives a new ESG rating tomorrow. Before even looking at whether it is good or bad, what is the first question they should ask?

The first question is what this rating means and what it reflects about the company.

The second question is who within the company is responsible for the rating. That person needs to ensure that the expected indicators are published and that the data collected by rating agencies is checked for accuracy.

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About the author:

Anne Chanon is Head of Marketing & Communication at EthiFinance. She has been with the EthiFinance Group since 2015, holding several senior positions across corporate sustainability, ESG research and knowledge management. Previously, she held responsibilities focused on research, ethics, and stakeholder relations, in connection with sustainability issues. She is a Sciences Po Paris graduate in Economics and Finance.