On November 19, the Council of the European Union (EU) took two significant steps to advance its regulatory framework for sustainability and human rights. It adopted a new regulation to standardize Environmental, Social, and Governance (ESG) ratings, aiming to improve transparency and investor confidence in sustainable finance, and approved a ban on products made using forced labor, establishing a robust mechanism to identify, investigate, and eliminate such goods from the EU market.
Council greenlights new regulation on Environmental, Social and Governance (ESG) ratings
The Council approved a new regulation to standardize and enhance the transparency, consistency, and reliability of environmental, Social, and Governance (ESG) rating activities within the EU. These ratings assess the sustainability profile of companies and financial instruments, impacting investor confidence and capital markets.
The regulation mandates that ESG rating providers within the EU be authorized and supervised by the European Securities and Markets Authority (ESMA) and adhere to strict transparency rules, particularly regarding their methodologies and data sources. Non-EU providers seeking to operate in the EU must meet specific recognition criteria or obtain endorsement from EU-authorized providers.
To prevent conflicts of interest, the regulation introduces a separation of business activities. It will be published in the EU’s Official Journal, take effect 20 days after publication, and apply 18 months later – so likely in mid-2026.
The regulation stems from a June 2023 proposal by the European Commission and an agreement with the European Parliament under the ordinary legislative process. [European Council 1, Press Release] [European Council 2, Regulation]
Council adopts ban on products made with forced labor
The Council has formally adopted a regulation banning the import, export, and sale of products in the EU market made using forced labor. This regulation establishes a framework for identifying and investigating such products. The European Commission will maintain a database highlighting forced labor risk areas and products to aid national authorities in enforcing the ban.
Investigations will be initiated based on suspected risks, with the Commission addressing forced labor outside the EU and member state authorities addressing cases within their jurisdictions. Decisions to ban or remove products made using forced labor will be mutually recognized across all EU member states.
After being signed by the Presidents of the European Parliament and Council, the regulation will be published in the Official Journal. It will enter into force the day after publication and will apply three years after its entry into force. If published by the end of 2024, the regulation will likely apply in early 2028. [European Council 3, Press Release] [European Council 4, Proposal]