On 16 October 2025, ESMA published its Final Report on the Regulatory Technical Standards (RTS) under the ESG Ratings Regulation (ERR), a milestone on the journey to regulate providers of environmental, social and governance (ESG) ratings in the EU. The final RTS set the blueprint for authorization, recognition and disclosure requirements for ESG rating providers, signaling a major step toward enhancing the transparency and integrity of ESG-rating activities.
The RTS cover three core areas:
Entities seeking to operate as ESG rating providers in the EU must submit detailed applications to ESMA covering their business model, ownership and organizational structure, analyst resources, and methodologies. Non-EU entities may also need recognition or endorsement to operate within the EU
ESG rating providers must put in place organizational and physical separation of activities to ensure that employees involved in ESG rating processes are not simultaneously engaged in conflicting services, particularly if they also offer consulting, credit ratings, or data analytics services, thereby safeguarding the independence and integrity of the ratings.
ESG rating providers are required to publicly disclose information about their methodologies, data sources, limitations, revision processes, and business models. The final RTS introduces greater flexibility — for instance, it allows the use of cross-references and hyperlinks instead of repeating content — and removes the earlier requirement to publish the names of all rated entities.
The new RTS will have significant implications across the ESG ratings and investment ecosystem:
Global ESG rating providers will face stricter authorization, transparency, and conduct requirements
Specialist or Boutique ESG Data Firms will need to align with these harmonized standards, increasing the rigor of their methodologies and disclosures
Financial Institutions and Investors will benefit from clearer, more reliable ESG ratings, enabling better-informed sustainable investment decisions.
Corporate Issuers Corporate issuers will be incentivized to improve their ESG performance and transparency to secure favorable ratings, which influences their reputation, access to capital, and investor confidence.
Overall, the regulation fosters a more transparent, consistent, and trustworthy ESG rating market within the EU to support sustainable finance goals.
In response to industry feedback, ESMA has moderated some of its initial proposals to reduce administrative burden and address confidentiality concerns:
The requirement to identify each rated item by name has been removed.
Disclosure flexibility has been introduced, allowing cross-referencing and hyperlinks instead of duplicative disclosures.
Providers must still publish criteria for material changes to methodologies and maintain version histories, but the final text avoids overly prescriptive rules.
The RTS has now been submitted to the European Commission as delegated regulations, and the EU Parliament and the Council of the EU will have three months to decide whether to object. Once adopted, the RTS will enter into force 20 days after their publication in the Official Journal and will apply from 2 July 2026, aligning with the regulatory entry date of the ESG Ratings Regulation itself.
Cognitud helps financial institutions and corporates navigate the evolving ESG regulatory landscape with confidence, supporting them on their journey toward ESG compliance while strengthening governance, data, and disclosure frameworks. As an experienced environmental consultant, Cognitud brings deep expertise in aligning regulatory requirements with practical, business-driven solutions.
Assessing readiness for ESMA’s new ESG Ratings RTS requirements,
Designing governance and conflict-of-interest frameworks,
Developing transparent ESG rating methodologies and disclosures, and
Integrating sustainability principles into broader risk and compliance systems.
With the EU’s ESG Ratings Regulation entering into force in 2026, now is the time to prepare. Cognitud can guide your organisation in aligning with the new standards, ensuring compliance, transparency, and credibility in the evolving ESG ecosystem.
Abhigyan Gupta
Advance your strategy with solutions calibrated to your market environment.
The European Securities and Markets Authority (ESMA) is the EU’s financial markets regulator. Its role is to enhance investor protection, ensure orderly financial markets, and improve transparency across the EU. ESMA develops rules, supervises key financial entities, and coordinates oversight among national regulators.
The ESG Ratings Regulation is a new EU rule that makes sure companies providing ESG ratings work in a clear, fair, and trustworthy way. ESG ratings measure how well a company performs on environmental, social, and governance issues, and investors rely on these scores to make decisions. The regulation requires rating providers to be officially approved, avoid conflicts of interest, and clearly explain how they create their ratings. In short, it helps ensure that ESG ratings are transparent, unbiased, and reliable.
ESMA’s Regulatory Technical Standards (RTS) provide detailed rules on how the ESG Ratings Regulation must be implemented. They define specific requirements for: • authorization or recognition of ESG rating providers, • governance and conflict-of-interest safeguards, and • transparency and disclosure obligations. These standards operationalize the regulation and ensure consistent application across the EU.
In the EU, ESMA is the direct supervisor and regulator of ESG rating providers. It grants authorization to EU-based providers, recognizes or endorses non-EU providers, and monitors compliance with conduct, governance, and transparency rules.
ESG rating providers must publicly disclose: • rating methodologies and underlying assumptions, • data sources and their limitations, • how qualitative and quantitative inputs are used, • processes for revising methodologies, and • their business model and potential conflicts of interest. The purpose is to help users understand how ratings are produced and how reliable they are.
