When is an Asset Manager an ESG Ratings Provider?

Lewis Saffin, Associate at Herbert Smith Freehills, highlights the key takeaways for asset managers from incoming ESG rating regulation in Europe.

Having the support of the European Council and the responsible European Parliament committee, the final compromise text in relation to a regulation on ESG rating activities (the regulation) is expected to start applying 18 months after its entry into force following formal approval and publication. Once live, the regulation will represent the first compulsory rules governing ESG rating activities in Europe.

ESG rating providers are the primary focus of the proposed regulation. However, alternative investment fund managers, UCITS management companies and portfolio managers which use ESG ratings for their products and services carried out in or marketed into the EU (collectively, asset managers) may be in scope if they procure these ratings from third parties or generate them using proprietary ESG methodology.

Asset managers should consider:

whether they are subject to regulatory obligations as an ‘ESG rating provider’ for the purposes of the regulation; and whether they are subject to disclosure obligations as the provider or user of ESG ratings. Can an asset manager be an ‘ESG rating provider’?

The regulation defines an ESG rating provider as “a legal person whose occupation includes the issuance and publication or distribution of ESG ratings on a professional basis”.

ESG ratings are broadly defined and could potentially include any sort of ESG scoring system.

As such, any asset manager which uses a proprietary methodology to generate ESG scores would potentially be issuing ESG ratings and fall within the definition of an ‘ESG rating provider’. However, there are certain exemptions from the substantive licensing, organisational and methodological obligations for ESG rating providers which could be availed of by asset managers.

Relevant exemptions for asset managers

The main carve-outs from the regulation which will be relevant to asset managers relate to:

private ESG ratings which are “not intended for public disclosure or for distribution”; ESG ratings issued by regulated financial undertakings that are used exclusively for internal purposes or for providing in-house or intragroup financial services or products; and disclosures mandated by certain provisions within Regulation (EU) 2019/2088 (the Sustainable Finance Disclosure Regulation; SFDR) and Regulation (EU) 2020/852 (Taxonomy Regulation).

Moreover, where an asset manager issues an ESG rating which is both (i) incorporated in a product or a service which is already regulated under EU law; and (ii) disclosed to

Charted: How Americans Feel About Federal Government Agencies

Published

9 seconds ago

on

May 10, 2024 Graphics/Design:

See this visualization first on the Voronoi app.

Chart: How Americans Rate 16 Federal Government Agencies

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Come election time, America won’t hesitate to show its approval or disapproval of the country’s elected political representatives. That said, feelings about the federal bureaucracy and its associated agencies are a little harder to gauge.

We chart the results from an opinion poll conducted by Pew Research Center between March 13-19, 2023. In it, 10,701 adults—a representative of the U.S. adult population—were asked whether they felt favorably or unfavorably towards 16 different federal government agencies.

Americans Love the Park Service, Are Divided Over the IRS

Broadly speaking, 14 of the 16 federal government agencies garnered more favorable responses than unfavorable ones.

Of them, the Parks Service, Postal Service, and NASA all had the approval of more than 70% of the respondents.

AgencyFavorableUnfavorableNot sure 🏞️ National Park Service81%7%12% 📮 U.S. Postal Service77%20%3% 🚀 NASA74%9%17% 💼 Social Security
Administration61%28%12% 🔬 CDC56%38%6% 🎖️ Veterans Affairs56%28%16% 🌿 EPA55%31%14% 💉 Health & Human
Services55%30%15% 🕵️ FBI52%36%12% 🚗 Department of
Transportation52%36%12% 🛡️ Department of
Homeland Security51%35%13% ⚖️ Department
of Justice49%41%10% 🕵️‍♂️ CIA46%33%21% 📚 Department
of Education45%47%8% 💰 Federal Reserve43%37%20% 💼 IRS42%51%7%
Note: Figures are rounded. No answer responses are not shown.

Only the Department of Education and the IRS earned more unfavorable responses, and between them, only the IRS had a majority (51%) of unfavorable responses.

There are some caveats to remember with this data. Firstly, tax collection is a less-friendly activity than say, maintaining picturesque parks. Secondly, the survey was conducted a month before taxes were typically due, a peak time for experiencing filing woes.

Nevertheless, the IRS has come under fire in recent years. As per a New York Times article in 2019, eight years of budget cuts have stymied the agency’s ability to scrutinize tax filings from wealthier and more sophisticated filers.

At the same time poorer Americans are facing