The ESG Ratings Regulation will impose website disclosure obligations on fund managers that include ESG ratings in fund marketing communications, in addition to requirements applicable to ESG ratings providers. The legislation will apply from 2 July 2026.
Overview
From July 2026, fund managers that disclose ESG ratings to third parties in their marketing communications will be required to include specific disclosures on their websites and must include a link to those website disclosures in marketing communications. The main purpose of the ESG Ratings Regulation[1] (the “Regulation”) is to require entities that issue, publish and distribute ESG ratings on a professional basis to seek authorisation from the European Securities and Markets Authority (“ESMA”) and to comply with organisational and governance requirements.
Background
The Regulation amends the provisions relating to marketing communications in the Sustainable Finance Disclosure Regulation (“SFDR”) to impose this disclosure requirement on fund managers. The specific disclosure requirements are set out in Annex III point 1 of the ESG Ratings Regulation and the recitals to the legislation note that fund managers may take into account the content of any information already disclosed under the SFDR.
Definition of ESG Rating
An ESG rating is defined in the Regulation as an opinion or score (or a combination of both) regarding a rated item’s profile or characteristics with regard to environmental, social and human rights or governance factors or regarding a rated item’s exposure to risks or impact on environmental, social and human rights, or governance factors, that is based on both an established methodology and a defined ranking system of rating categories, irrespective of whether such ESG rating is labelled as ‘ESG rating’, ‘ESG opinion’ or ‘ESG score’. Each of these three labels is defined in turn.
Practical Considerations for Fund Managers
Fund managers should conduct an assessment of any documentation that may be considered as marketing communications to determine whether an ESG rating (whether proprietary or issued by a third party) has been disclosed. No definition of “marketing communications” is provided in the Regulation or in the SFDR. The disclosure requirements set out in Annex III, point 1 were drafted with ESG ratings providers, rather than fund managers, in mind. ESMA is mandated under the Regulation to draft regulatory technical standards (“RTS”) providing further detail on what exactly is to be disclosed. However, the Commission has deemed these RTS to be non-essential empowerments and has stated that it will not adopt these RTS before 1 October 2027. ESMA published a final report on the RTS in October 2025, which may provide some guidance for fund managers in the absence of final legislation.
What must be disclosed?
The disclosure requirements set out in Annex III, point 1 of the Regulation include:
(a) an overview of the rating methodologies used and changes thereto, including whether analysis is backward-looking or forward-looking and the time horizon covered;
(b) the industry classification used;
(c) an overview of data sources, including whether data is sourced from sustainability statements required under the EU Accounting Directive or from information disclosed under the SFDR and whether sources are public or non-public, and an overview of data processes, estimation of input data in case of unavailability and frequency of data updates;
(e) the ownership structure of the ESG rating provider;
(f) information on whether and how the rating methodologies are based on scientific evidence;
(g) information on the ESG rating’s clearly defined objective and marking whether the rating is assessing risks, impacts, or both, according to the double materiality principle, or any other dimensions, and in the case of double materiality the proportion of the risk and impact materiality;
(h) the ESG rating’s scope, namely, whether it covers an individual E, S, or G factor or whether it is an aggregated rating aggregating E, S and G factors, or whether it covers specific issues such as transition risks;
(i) in the case of an aggregated ESG rating, the weighting of the three overarching E, S and G categories of factors (for example 33% for the E factor, 33% for the S factor, 33% for the G factor), and the explanation of the weighting method, including weight per individual E, S and G category;
(j) within the E, S or G factors, specification of the topics covered by the ESG rating, and whether they correspond to the topics from the sustainability reporting standards developed pursuant to the EU Accounting Directive;
(k) information on whether the rating is expressed in absolute or relative value;
(l) where applicable, reference to the use of artificial intelligence in the data collection or rating process including information about current limitations and risks of using artificial intelligence;
(m) general information on criteria used for establishing fees charged to clients, specifying the various elements taken into consideration, and general information on the business / payment model;
(n) any limitation in data sources and methodologies used for the construction of ESG ratings;
(o) the main risks of conflicts of interest and the steps taken to mitigate them;
(p) if an ESG rating of a rated item covers the E factor, information on whether that rating takes into account the targets and objectives of the Paris Agreement or any other relevant international agreements;
(q) if an ESG rating of a rated item covers the S and G factors, information on whether that rating takes into account any relevant international agreements; and
(r) any limitation on the information available to ESG rating providers.
Contact us
Please get in touch with your usual Asset Management and Investment Funds Department contact or any of the contacts listed in this publication should you require further information in relation to the material referred to in this update.
Full details of the Asset Management and Investment Funds Department, together with further updates, articles and briefing notes written by members of the Asset Management and Investment Funds team, can be accessed at www.matheson.com.
[1]. Regulation (EU) 2024/3005