EU watchdog says rules needed to avoid 'greenwashing' of ESG ratings

LONDON, Jan 29 (Reuters) - European Union rules are needed for ratings on whether investments are sustainable and climate-friendly to avoid investors being deceived by "greenwashing", the bloc's securities watchdog said on Friday.

The European Securities and Markets Authority (ESMA) said it had written to urge the bloc's executive European Commission to bring in new rules to regulate ratings on the environmental, social and governance (ESG) aspects of companies.

Asset managers use such ratings to make "green" investment decisions.

"The market for ESG ratings and other assessment tools is currently unregulated and unsupervised," ESMA said in a statement.

"When combined with increasing regulatory demands for consideration of ESG information, there are increased risks of greenwashing, capital misallocation and products mis-selling."

Greenwashing refers to giving a misleading impression of green credentials.

Reporting by Huw Jones. Editing by Mark Potter

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