A draft code of conduct for providers of ESG ratings and data was released Wednesday by a U.K. industry working group seeking feedback.
Appointed by the Financial Conduct Authority in November to help with ESG oversight, the ESG Data and Ratings Working Group run by the International Capital Market Association and the International Regulatory Strategy Group released the proposed voluntary Code of Conduct for ESG Ratings and Data Product Providers for public comment until Oct. 5. A final code is expected by the end of the year.
The U.K. is also developing legislation parallel to the voluntary code.
The proposed code of conduct covers six key principles for evaluating ratings and data providers: good governance, ways to ensure quality, conflicts of interest, transparency in methodologies and processes, confidentiality and engagement with covered entities on the assessment process.
Although commissioned by the U.K. financial regulator, the group is coordinating with regulators in other countries and the International Organization of Securities Commissions. The working group’s steering committee said in a news release that it will factor in developments in jurisdictions including Japan, Singapore and the EU.
Sacha Sadan, director of ESG for the FCA, in the release called the draft “an important step in increasing transparency and trust in the growing market for ESG data and ratings products.”
The draft code’s introduction noted that numerous jurisdictions globally have developed and issued legislative proposals or codes that refer to IOSCO recommendations. The goal of the proposed code is ensuring global interoperability and coherence for global ESG ratings and data providers, it said.
The working group is led by officials with M&G, Moody’s, the London Stock Exchange Group and Slaughter & May with participation by other stakeholders, such as the ratings and data providers, asset managers, asset owners and corporate rated entities.
The FCA regulates banks, asset management firms, investment firms and financial institutions. In February, it said its ESG strategy will involve more scrutiny of sustainability-related governance, incentives and competence of financial firms.
