How Firms Can Prepare for the EU ESG Ratings Regulation

Ben Maconick

CMS: Partner

Many firms will fall within the EU ESG Ratings Regulation without realising it. Ben Maconick from CMS explains how dashboards, scores, and analytics create risk. He also walks through how firms can assess exposure, use exemptions, and prepare to comply.

Regulation and Initiatives

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How Firms Can Prepare for the EU ESG Ratings Regulation

14 mins 45 secs

Key learning objectives:

Identify exemptions and understand where they apply
Recognise grey areas that create regulatory risk
Explain the core obligations for ESG rating providers
Assess your firm’s exposure and readiness

Overview:

The biggest compliance risk under the EU ESG Ratings Regulation is accidental exposure. Firms often become ESG rating providers not by intent, but through the way their tools, models, and outputs are structured and shared. Preparation is essential. Firms must understand which activities are genuinely exempt, where exemptions break down, and why grey areas such as dashboards, benchmarks, and internal scoring tools attract regulatory scrutiny. Once a firm is in scope, it needs a clear view of the obligations that apply and a practical plan to meet them.

The critical questions are straightforward: are ESG ratings being produced, can an exemption be relied on, and if not, is the organisation ready to comply?

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Summary

Why do firms fall into scope unintentionally?
Because the regulation looks at substance, not labels. The moment ESG analysis is presented on a structured scale and distributed beyond the firm, regulators may treat it as a rating. Dashboards, rankings, and scoring tools can all cross the line once shared externally.

What activities are clearly out of scope?
Strictly internal ratings, intragroup use by EU-regulated firms, bespoke one-to-one ratings that are not redistributed, external certifications, and raw ESG data generally sit outside the regime. Non-profit ratings made available free of charge may also qualify for exemption.

Where are the main grey areas and why are exemptions risky to rely on?
Grey areas arise when ESG ratings are embedded within other products or disclosures, or when only part of a rating is shared. Some carve-outs avoid authorisation but still impose disclosure obligations, and many apply only to EU-regulated firms. Boundaries are narrow and closely scrutinised.
Exemptions are conditional and easy to lose. Onward distribution, repeated use, or changes in presentation can bring firms back into scope. Firms relying on exemptions must actively manage how ratings are produced, licensed, and shared.

What obligations apply once a firm is in scope?
Authorised providers must manage conflicts of interest, separate incompatible activities, establish independent governance and oversight, implement robust systems and controls, set fees on a fair and transparent basis, and publish detailed methodological disclosures. Compliance expectations are comparable to other regulated market infrastructure.

How should firms prepare now?
Start by mapping where ESG scores, rankings, and dashboards exist across the business. Assess EU connections carefully, including indirect links such as EU listings. Review potential exemptions, train staff on the boundaries, and plan early for authorisation or endorsement if required.

What is the key takeaway?
This regulation is not just for specialist ESG rating agencies. Any firm turning ESG data into judgments must know whether it is caught, exempt, or ready to comply. Getting that answer wrong is not a technical issue — it is a regulatory risk.

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Ben Maconick

Ben Maconick is a partner in the CMS financial services team in London, where he advises clients on financial regulation. A key part of his work focuses on sustainability-related financial regulation and helping firms navigate the fast-changing rules in this space. He works on issues such as licensing and authorisation requirements, governance, conduct of business, prudential requirements, insider dealing and market abuse, cross border business, product design and the regulatory aspects of transactions.

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