ESMA endorses non-EU applicable ESG benchmarking

August 25, 2022

The EU’s top financial services regulator, the European Securities and Markets Authority (ESMA), has endorsed the introduction of an ESG benchmark applicable beyond the bloc. 

In a public response to the European Commission’s recent consultation on new benchmark regulations (BMR), ESMA highlighted the notion of benchmarks applicable to third countries as well as member nations. 

This would include the removal of restrictions on using third-country benchmarks. 

Read Minerva's previous coverage of ESMA & ESG Benchmarks

https://www.old.manifest.co.uk/esma-identifies-esg-rating-shortcomings/

The financial regulator has argued these steps would help ensure greater consistency between the EU and other jurisdictions.  

In its response, the regulator wrote: “ESMA believes that a level playing field should be ensured for EU and third country administrators of benchmarks under the BMR to avoid regulatory arbitrage and to preserve stable and orderly EU financial markets.” 

The EU’s BMR began in January 2018, though benchmarks used in other countries are still regarded compliant under a grace period due to end in January 2023. 

Elsewhere in its response, the regulator highlighted how it could introduce new labels to combat greenwashing and further improve transparency. 

The former could take the form of an ‘opt-in’ model, something ESMA has already noticed with success in its UCITs regime: “ESMA supports the proposal for an opt-in regime by putting forward a quality label for administrators of non-strategic benchmarks for conducting business in the EU.  

“The relevance of such approach is confirmed by the recent ESMA and national competent authorities (NCAs’) experience on applications for recognition and endorsement where several relatively small administrators, while not currently obliged to do so, are applying in the EU and willing to demonstrate compliance with the BMR also to support their business presence in the EU.” 

Regarding the latter, the regulator is also calling for greater disclosure specifically around methodologies between benchmark administrators. 

The EU Commission recently carried out a survey of industry participants to gauge attitudes towards BMR developments.  

These findings will soon be reported to the European Parliament and Council, which will vote on any changes.