ESG rating authorisations: Italia submits the highest number of applications to ESMA

Twenty-one. That is the number of Italian companies that have notified ESMA, the European Securities and Markets Authority, of their intention to continue producing ESG ratings. Italia tops this list: behind us come Germany with 17, France with 10, the Netherlands with 6, and so on. The list is available on the ESMA website: by 2 November, all firms that have submitted a notification must then apply for inclusion on the register, which will take place following review by the authority. This is the phased procedure set out in European Regulation 2024/3005 for ESG rating agencies wishing to operate within the European Union.

In order not to penalise smaller firms compared with the rating giants, a three-year transitional regime has been introduced (as provided for in Article 5 of the Regulation) ‘which sets out more proportionate requirements for small ESG rating providers’, according to the ESMA website. For three years, therefore, small ESG rating agencies will have fewer compliance obligations; the requirements for accessing the temporary regime are those set out by ESMA on its website: ‘They must not exceed two of the following thresholds at individual level and, where relevant, at group level: total assets of €5 million or less; net turnover of €10 million or less; average number of employees of 50 or fewer.’

In addition to the list of companies that have submitted their applications, there is also a list of companies that have already been granted approval for registration: the figures are as at 13 August and all are Article 5 companies, and therefore fall under the temporary ‘small’ regime; There are 13 companies, including four Italian ones (Asacert, Ecomate, Fidesg and Standard Ethics Europe).

The question now is: will the temporary scheme be enough to ensure that even small European businesses can survive? “The regulation of ESG ratings is designed to boost confidence and transparency, but it raises a second question: who will still be able to produce them?” explains Alain Keck, managing director of Mc Advisory CSR, who submitted the notification to ESMA and applied for registration under Article 5. “The sector naturally favours scale,” adds Keck. “You need large databases, continuous updates, technological capability, international coverage and integration into investors’ systems. The risk is that the fixed costs of compliance will actually strengthen the operators that are already dominant.”

Hence the ad hoc regulations for small businesses. “The temporary scheme,” Keck points out, “eases the initial regulatory burden, but does not resolve the main competitive disadvantages. The first is access to data: licences, standardisation, historical data management and quality controls all involve costs that do not decrease in proportion to turnover. The second is distribution: banks, insurance companies and service providers prefer suppliers who are already integrated into their own systems and offer very broad coverage. The third is reputational: the provider’s brand often becomes an implicit factor in the purchasing decision.” We shall see what happens in the coming years. In the hope that ESG ratings do not end up in the hands of a select few.