ESG Ratings Regulation: Key considerations for EU fund managers

The new ESG Ratings Regulation ((EU) 2024/3005) (the Regulation) commenced application on 2 July 2026. For EU fund managers, including AIFMs and UCITS management companies, the Regulation is most relevant where ESG ratings are used in investment processes, product governance, fund documentation, factsheets, websites or other investor-facing communications. Although the regime is principally directed at ESG rating providers, it creates important diligence, governance and disclosure considerations for managers that use or rely on, reference or communicate ESG ratings to investors. 

The Regulation contemplates a wide range of 'users of ESG ratings' meaning a natural or legal person, a public authority, an agency or other body governed by public law, to which an ESG rating is distributed by subscription or other contractual relationships. In practice, this shall include regulated financial undertakings in the EU; undertakings in scope of the Accounting Directive 2013; undertakings in scope of the EU Transparency Directive; or EU institutions / bodies / offices / agencies or Member State public authorities.

Rated item encompasses the entity, financial instrument, product, or public body that is explicitly or implicitly rated.

ESG rating means an opinion or a score, or a combination of both, regarding a rated item’s (i) profile or characteristics with regard to, or (ii) exposure to risks or impact on, human rights or ESG factors, that is based on both an established methodology and a defined ranking system of rating categories (irrespective of how such rating is labelled).

How do managers interact with the regulation

From a fund manager perspective, the starting point is to distinguish between regulated activities that are directed at ESG rating providers and those that may affect the way AIFMs and UCITS management companies use ESG ratings. EU providers that publish, or distribute by subscription or contract, ESG ratings to users of ESG ratings will become subject to direct ESMA authorisation and supervision. Non-EU providers that distribute ESG ratings by subscription or contract to users of ESG ratings must operate under an equivalence, endorsement or recognition pathway. Managers are not generally expected to become authorised merely because they use third-party ESG ratings, but they should assess whether any proprietary scores, rankings or ratings are distributed or communicated externally in a manner that could bring them within scope.

For AIFMs and UCITS management companies that rely on third-party ESG ratings, the key practical issue is provider status and continuity of use. ESG rating providers must comply with transparency requirements regarding methodologies and information sources, notify ESMA by 2 August 2026 to continue their operations, and apply for authorisation or recognition by 2 November 2026. ESMA will maintain a public register of authorised providers (Article 14), which should support managers in verifying that the ESG rating providers they use are compliant. Accordingly, as of 2 July 2026, no ESG rating providers have yet been authorised by ESMA.

On 1 July 2026, in order to provide the market with clarity, ESMA issued a public statement confirming that third parties - including fund managers - may continue to publish or distribute ESG ratings produced by existing but not-yet-authorised ESG rating providers during the transitional period. For fund managers, the key point is that from 2 November 2026 it will no longer be permissible to publish or distribute ESG ratings from a provider that has not submitted an application for authorisation or recognition; made a notification for registration under the small provider regime; nor appeared on the Article 14 register.

What may be out of scope for managers?

For AIFMs and UCITS management companies, the exclusions are particularly important because they may mean that internal ESG assessment tools or regulated product disclosures do not themselves constitute ESG ratings for the purposes of the Regulation. Relevant exclusions provided for under the Regulation include the following:

1. Private ESG ratings that are not intended for public disclosure or distribution; 
2. ESG ratings issued by an EU RFU, which are used exclusively for internal purposes or for providing in-house or intragroup financial services or products.
3. ESG ratings incorporated in a product or service, where such products or services are already regulated under EU Law and are disclosed to a third party; 
4. ESG labelling activities; 
5. ESG ratings issued by an “authorised ESG rating provider” where such ratings are published or distributed by a third party; and
6. Mandatory disclosures pursuant to SFDR and the Taxonomy Regulation.

Managers should, however, be careful not to assume that all ESG scores or assessments are outside scope merely because they are generated internally. The key distinction is whether the output is used solely for internal investment, risk or product governance purposes, or whether it is published or distributed externally as an ESG rating.

Third-party ESG rating providers: Manager due diligence

Fund managers should understand the new organisational, conduct and transparency rules that will apply to the ESG rating providers on which they rely, as these rules will affect provider selection, ongoing oversight and the disclosures that managers may need to make when referring to ESG ratings. Obligations which ESG ratings providers are subject to include:

Organisational and conduct rules

• an obligation to ensure the independence of their rating activities;
• training of those involved in the rating process;
• implementing appropriate conflicts of interest arrangements;
• complaints handling; and
• outsourcing requirements.

Transparency obligations

• minimum website disclosure to the public of the methodologies, models and key rating assumptions used in ESG rating activities; and 
• ongoing disclosures to users of ESG ratings, rated items and issuers.

For managers, these transparency requirements should support better due diligence on rating providers, improve comparability between ESG rating products and assist in assessing whether a particular ESG rating is suitable for use in a fund’s investment process, product governance framework or investor communications.

The Regulation imposes strict conflict of interest requirements on ESG rating providers. From a manager due diligence perspective, the conflict of interest requirements are relevant because they should improve the reliability and independence of ESG ratings used in fund investment processes and investor communications.

While derogations exist for certain activities subject to appropriate safeguards, ESG rating providers must separate their rating activities from certain other business lines, including consulting, credit ratings, benchmarks, investment services, and audit activities.

Marketing communications and investor-facing materials

Where an AIFM, UCITS management company or other regulated financial undertaking references an ESG rating from an in-scope provider in marketing communications or other investor-facing materials, it must include a hyperlink to information on the rating provider’s methodologies, models and key assumptions. Annex III (1) of the Regulation sets out the detailed minimum disclosure requirements relating to the disclosed ESG rating, including information on ratings methodologies, data sources, the scope of the rating, the materiality dimensions addressed, any limitations in data or methodology, and the weighting of E, S, and G factors, amongst other matters. Fund managers may have regard to information already published in accordance with applicable regulatory requirements e.g. disclosures under SFDR, in determining their website disclosure obligations. This obligation should be considered for fund factsheets, websites, pitch decks, investor reports, sustainability-related marketing materials and other such marketing communications that cite ESG ratings.

Practical considerations

AIFMs, UCITS management companies and other EU asset managers using ESG ratings should consider the following steps to prepare for the Regulation:

1. Map ESG rating usage: Identify where ESG ratings are used across investment processes, portfolio construction, product governance, fund documentation, marketing materials, websites, factsheets, investor reports and other disclosures to third parties.
   
   
2. Distinguish internal tools from externally communicated ratings: Assess whether any proprietary ESG scores, rankings or ratings are used solely for internal investment or risk purposes, or whether they are communicated externally in a way that may bring them within scope.
   
   
3. Verify third-party provider status: Confirm that ESG rating providers used by the firm are seeking authorisation, recognition, endorsement or registration, as applicable, and monitor their status against ESMA’s Article 14 register once available.
   
   
4. Update investor-facing templates: Revise marketing material templates, factsheets, website content and investor communications to include the required hyperlinks to ESG rating methodology information where ESG ratings are disclosed.
   
   
5. Review governance and oversight: Consider whether policies, procedures, compliance monitoring and product governance processes should be updated to reflect the new regime and the firm’s reliance on ESG ratings.

If you have any queries on the regulation and/or the impact that it may have on you and your business, please speak to your usual Walkers contact or connect with any of the contacts listed below.