The relatively new world of ESG indicators displays many similarities with the original markets for ratings and benchmarks, but it also has some distinguishing features. This chapter explores to what extent the regulatory strategies that were developed in ‘traditional’ financial law to support confidence in ratings and benchmarks can be exported to the ‘new’ world of ESG finance, and concludes that policymakers should be cautions when transposing rules. This is especially the case with ESG ratings. In this area, credit ratings are the immediate reference for ESG rating regulation also, because of the common label of ‘rating’, which is rather misleading, and of the anchoring effect this entails. First, the assessments underlying ESG ratings are often more subjective than those supporting traditional indicators, due to their multivariate nature. Second, the risk of regulatory failures connected to the authorisation and registration labels also seems higher in the ‘new’ world of sustainability. The chapter analyses the new ESG Ratings Regulation and the Benchamkr Regulation against this backdrop, and highlights the suboptimality of some policy choices.

Reputation matters. Companies invest vast resources in building and maintaining a good reputation. And the threat of losing reputation once bad news about the company breaks disciplines corporate behavior to begin with. Companies anticipate that the release of damning information about them may raise the costs of financing, because investors and lenders now realize that the company has poorer internal controls than they had previously thought. Or it may raise the operational costs of the company, because consumers, suppliers, and employees now perceive the company’s operational culture to be more opportunistic than they had initially assumed.