Environmental, social, and governance (ESG) ratings assess a company's or financial instrument's exposure to sustainability risks and its impact on society and the environment. These ratings play a crucial role in building investor confidence in sustainable products and enhancing the broader operational capacity of capital markets. Addressing the issue of reliability, the Commission initiated a regulatory proposal for ESG ratings in 2023 with the aim of improving transparency and integrity of the operations of ESG ratings providers, preventing potential conflicts of interest and facilitating sustainable investment decisions. Following the political agreement between the co-legislators, the regulation was published in the Official Journal of the European Union on December 12, 2024 and will apply from July 2, 2026.

Under the new regulatory framework, ESG rating providers operating in the EU or serving EU clients (including non-EU companies) must be authorized and supervised by ESMA and comply with transparency requirements, in particular with regard to their methodology, sources of information and potential conflicts of interest. This is intended to prevent greenwashing and promote sustainable investments.  

Deutsche Börse Group supports the standardization of ESG ratings and welcomes attempts to increase investor confidence in sustainable products.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.

The introduction of ESG benchmarks in the European Union promotes sustainable investment through transparent, comparable, and credible reference values. These benchmarks offer reliable guidance to investors pursuing climate-conscious or broader sustainable investment strategies. In 2020, two new climate-focused benchmark categories were introduced as part of the EU Benchmark Regulation: EU Climate Transition Benchmarks (EU CTBs) and EU Paris-aligned Benchmarks (EU PABs). EU CTBs are designed to help investors align their portfolios with decarbonization pathways, while EU PABs align with the Paris Climate Agreement's 1.5°C target. Both benchmark types are subject to minimum technical requirements established by the European Commission in July 2020, including: 

• Significant reduction in greenhouse gas (GHG) intensity compared to the underlying investable universe;
• Mandatory year-on-year self-decarbonization (annual CO2 emissions reductions);
• Sectoral exposure constraints ensuring that exposure to sectors highly relevant to climate change is at least equivalent to that of the investable universe;
• Exclusion criteria for companies involved in activities significantly harmful to climate and broader ESG objectives.

These benchmarks were introduced in response to the rapidly growing demand for sustainable financial products. Between 2020 and 2021, the number of ESG-related financial indices rose by 43%, driven by investors shifting toward sustainable investments and the increasing popularity of passive investment strategies. These benchmarks are also intended to combat greenwashing by providing clear, verifiable criteria for their composition and methodology. Their introduction was a first step toward standardizing the EU's ESG benchmark landscape and served as a reference framework for the subsequent discussion on a more comprehensive ESG benchmark label encompassing social and governance aspects. 
 
In addition to the introduction of these two benchmark categories, comprehensive disclosure requirements for ESG factors have been established. Benchmark administrators must disclose whether and how ESG objectives are considered in the methodology and outline the extent to which the benchmarks are consistent with the Paris Climate Agreement. These disclosure requirements apply to all benchmarks except interest rate and currency benchmarks. The European Commission expects these measures to improve the transparency and comparability of financial products. 
 
In 2023, the European Commission published a comprehensive feasibility study on the introduction of an EU-wide ESG benchmark label based on research conducted from January to November 2022. The aim of the study was to analyze the existing ESG benchmark landscape, identify strengths and weaknesses, and evaluate various options for minimum standards and a voluntary ESG label. The proposed options range from mandatory minimum requirements for all ESG benchmarks to a voluntary label for benchmarks with particularly high ESG ambitions. The study shows that an EU label for ESG benchmarks could help prevent greenwashing, steer capital toward sustainable investments, and improve consistency within the EU regulatory framework. However, it emphasizes that practical implementation hinges on the availability of reliable ESG data, particularly data - particularly regarding disclosure requirements under the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). 
 
Deutsche Börse Group welcomes the introduction of these two benchmark categories and the resulting improvements in transparency and comparability for financial products. 

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.