How ESMA regulation can make carbon markets stronger

This article was originally published in Carbon Pulse on 29th July 2026.

Carbon ratings providers are busy notifying the European Securities and Markets Authority (ESMA) of their intention to apply for authorisation under the ESG Ratings Regulation: BeZero, CarbonAI, MSCI, Sylvera. We hope more will follow. The deadline is 2 August 2026. 

ESMA regulations are a big moment for a novel category of ratings. They will enshrine the operating model for years to come. 

And as with all new things (especially anything carbon-related), debates about how rating agencies should operate have raged. 

Current ESMA guidelines help resolve some of these.

They state which business models are permitted (issuer-pay, and subscription-based are both endorsed); how rated entities must be engaged with (project developers are set to get more rights); and on best-practice governance structures (disclosure on ownership and organisational structures will become mandatory).

This clarity is timely, and helpful.

The last big debate is ESMA’s view of what makes a carbon rating independent, i.e. which activities are allowed by a rating organisation, which can be managed and disclosed via a separately governed subsidiary, and which are deemed structurally conflicted and fully prohibited.

We won’t know their formal position for sure until after ESMA assesses the various applications, i.e. likely sometime in early 2027. 

But it’s worth “double clicking” on what’s at stake ahead of that.

BeZero, and likely many others, will be applying on the basis that no part of our regulated commercial parent group, not just the ratings subsidiary, directly provides design, data, or verification services to project developers or Standards Bodies whose work it then rates. 

We believe this will ensure carbon ratings deliver on their primary role of being information infrastructure that provide project-level risk analysis above and beyond market labels and standards.   

Consider the alternative. Say a BeZero TopCo offered all services via subsidiaries.

It’s Spring 2027. A project is considering whether to use a forestry methodology. 

The project tenders for a dMRV or design partner, and BeZero wins. They then tender for a “regulated” rating, and BeZero wins.  

The problem is that both BeZero services rely on the same models we’ve spent years and millions of dollars developing. BeZero is marking its own homework.

Now imagine BeZero loses the dMRV pitch, but wins the ratings pitch. Unless the rating is AAA, the victorious dMRV provider can simply argue the rating is prejudiced - regulated or otherwise.

The same is true if we won the dMRV tender but lost the rating pitch, or if we design methodologies, or support verification processes.

To ensure ratings are independent, and regulations are most effective, ESMA guidance should require providers to only sit on one side of the table. 

An unregulated company may provide any mix of inputs. Only a regulated group can rate outputs. 

Doing both is a structural conflict that cannot be cured through disclosure, staff ring-fencing or separate subsidiaries.

The nuance for carbon is that the original regulations are for ESG ratings where the data assessed is only ever a function of what it is and what it does: its financials, its workforce, its emissions. 

Applying the rules to carbon means taking a view on a market where the lines between project developers; design consultants; data providers; Standards Bodies; verification bodies; due diligence and rating agencies are blurry at best. The market is nascent after all. 

The best thing ESMA can do is to draw a line in the sand about what activities a rating agency - and de facto other providers - can and can’t do. If not ESMA, then who. 

What carbon and ESG ratings have in common is that both will benefit from being underpinned by functional independence. 

It’s with good reason that a bookkeeper makes sure the data is traceable and follows a protocol set by an international body, or an accountancy firm does not keep a company’s books then audit them, or S&P does not help to structure a bond, then rate it. 

Likewise, why investors, banks, or bond rating agencies rely on audited accounts to independently assess the company for fundraises, credit facilities, or bond issuances.

This separation is not a burden. It is what gives credibility and confidence to market participants.

The good news is ESMA has a mandate to look through group structure to the substance of the conflicts. 

It has the tools (Articles 15, 16, 25 and more) to make the carbon market clearer, more independent, more confident, and more trustworthy. 

It has the opportunity to make climate action via carbon markets stronger.