An industry association introduces a set of guidelines for companies that offer ESG ratings and data products
The International Regulatory Strategy Group (IRSG) has endorsed the introduction of a Code of Conduct for providers of ESG (Environmental, Social, and Governance) ratings and data products.
In the pursuit of achieving net zero emissions, sustainable finance has become a critical component, leading to a rising demand for dependable ESG ratings and data products that clearly communicate a company’s sustainability efforts to both consumers and investors. Consequently, the influence and importance of ESG ratings and data product providers in financial markets have significantly increased.
Simultaneously, there have been calls for greater scrutiny of the transparency, quality, and reliability of ESG ratings and data products to instill confidence in the market.
Against this backdrop, the Financial Conduct Authority (FCA) commissioned the ESG Data and Ratings Code of Conduct Working Group (DRWG) in 2022, co-chaired by a Steering Committee comprising Moody’s, M&G, Slaughter and May, and the London Stock Exchange Group. This working group has brought together various stakeholders, including ratings and data providers, asset managers, asset owners, banks, corporate entities with ratings, NGOs, academics, and other organizations.
The primary goal of the Code is to enhance consistency, transparency, and accountability in the financial services industry, ensuring that the market can have faith in the integrity of ESG Ratings and Data products through improved systems, processes, and controls.
The Steering Committee emphasized:
“Members of the DRWG have strived to make sure that the Code of Conduct aligns with international standards, primarily by closely following the recommendations of the International Organization of Securities Commissions (IOSCO), while also considering similar developments in various global jurisdictions. We hope that the Code of Conduct, even though it originates in the UK, can serve as a global model and contribute to establishing consistent global standards for ESG ratings and data product providers.”
Farmida Bi, CBE, Chair of the IRSG Council, stated about ESG:
“An all-encompassing, proportionate, and globally consistent voluntary code of conduct for ESG ratings and data will ensure that this market is well-suited for its purpose, thus assisting market practitioners in assessing risks more accurately. This code will bolster investor confidence in ESG ratings and data, facilitating the allocation of capital for the urgent transition to net zero. The IRSG is pleased to support this crucial industry-led initiative by jointly providing the Secretariat.”
Sacha Sadan, FCA Director of Environmental, Social, and Governance, commented:
“As part of the FCA ESG Strategy, we committed to advocating for globally aligned solutions whenever feasible. With its strong emphasis on international consistency, this industry-driven code will play a pivotal role in enhancing transparency and trust in the ESG data and ratings market. We encourage all ESG data and ratings providers to engage with and adopt the code.”