Regulating ESG Rating and Data Product Providers: Critically Examining EU Regulation through the Lens of Functional Regulatory Consistency

The expansion of EU regulatory governance in the financial sector since the end of the global financial crisis 2008 has given rise to the need to examine regulatory consistency in the volumes of financial regulation that may have cross-cutting implications. In this light, this article examines the effectiveness of the Regulation of ESG infomediaries through the lens of “functional regulatory consistency” with other infomediary regulations, for credit rating agencies and stock market benchmarks. It argues that this lens most aptly reveals the three key weaknesses of the regulatory regime for ESG infomediaries. These relate to sub-optimal coverage of scope, over-inclusiveness in the application of regulatory standards and under-inclusiveness where appropriate governance is not provided. the sub-optimal coverage of scope raises the question of whether ESG stock market index providers should indeed be regulated as ESG infomediaries or as stock market benchmarks more generally falling within the Benchmarks Regulation 2016. Over-inclusiveness and under-inclusiveness in the regulatory provision reflects blind spots in applying functional regulatory consistency, where it is inappropriate due to distinguishing features in business models, market structures or market relations.