Highlights

• ESMA has issued its Final Report on ESG Ratings Technical Standards, which reshape rules on authorisation, separation of activities, and disclosures.
• Financial institutions must adapt internal structures and documentation to comply with the new RTS by 2 July 2026.
• The revised RTS simplifies ownership mapping, staffing disclosures, and methodology requirements, as well as introduces more practical separation and transparency measures.

The European Securities and Markets Authority (ESMA) released its Final Report on ESG Ratings Technical Standards recently.

The report outlines regulatory technical standards (RTS) for authorisation and recognition, separation of activities, and disclosures under the ESG Ratings Regulation.

These rules will transform the compliance framework for financial institutions and ESG ratings providers by simplifying earlier requirements and applying a more proportional approach.

Subject to approval by the European Commission, Parliament and Council, the RTS will kick in from 2 July 2026.

The revised RTS modifies several elements from the consultation stage to make compliance more practical.

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The Important Changes

Authorisation & Recognition Applications

Here, ownership mapping now focuses on parent undertakings and subsidiaries, which do away with the wider scope that previously included associated entities.

Senior management checks are targeted at specified financial crimes, with flexible options for criminal record evidence.

Staffing information has shifted from individual-level data to team-level descriptions of analysts and non-analysts, including headcount, training and seniority.

Methodology submissions do not require detailed models or rating assumptions, as submission of the methodology itself is sufficient. In addition, expected market coverage has been reduced to a basic product description and the number of rated items, while EU distribution lists are now simplified into a .csv format.

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Separation of Business Activities

For separation of business activities, ESMA has retained the expectation of physical separation, but has replaced prescriptive measures with outcome-oriented approaches.

Instead of mandatory segregated office spaces, the rules centre on role-based access controls, data classification, and confidentiality protocols that promote impartial decision-making.

Annual staff conflict declarations have been introduced, aligning with existing code of conduct practices in many organisations.

Monitoring of employee communications is described as a best-practice recital, no longer a binding measure.

Adequacy assessments of separation measures will now take place every 24 months instead of annually.

Changes to Disclosure Requirements are Extensive

Public disclosures must still follow a prescribed sequence and structure, but firms can now use cross-referencing and hyperlinks to existing materials, reducing administrative work.

ESMA has dropped the proposal to publish names or identifiers of rated items, clarifying that disclosures should remain at the product or methodology level.

Methodology transparency has shifted toward descriptive explanations of risk and impact materiality, engagement processes, scientific evidence identification, and the role of AI in ESG ratings. The previous granularity on AI types has been removed, while obligations on AI-related risks continue under Level 1 rules.

Firms must also define what counts as a material change in methodologies and make methodology updates publicly available, ensuring transparency for users.

See Also: What Is A Good ESG Rating?

What this Means for Financial Institutions

For financial institutions preparing to operate as ESG ratings providers, these revisions reduce the compliance burden but still involve detailed preparation.

Applications for authorisation and recognition are less complex than earlier drafts, but firms will need to prepare structured materials to meet RTS requirements.

Businesses integrating ESG ratings functions within larger entities will have to assess separation measures carefully, including conflict risk assessments and structural arrangements such as controlled meeting spaces and data classification tiers.

Disclosure processes will need updates to match the new RTS structure and timeline discipline, including methodology documentation, notification workflows, and version control.

The European Commission will review the RTS before Parliament and Council conduct a non-objection process. Once this stage concludes, the rules will take effect from 2 July 2026 and align with Level 1 implementation.

Ends/

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