Legal & Regulatory News

Consultation on draft code of conduct for ESG ratings and data product providers

On 5 July 2023, the ESG Data and Ratings Working Group (DRWG), alongside the International Regulatory Strategy Group and the International Capital Market Association, published a consultation on a draft voluntary code of conduct for ESG ratings and data product providers (the Code of Conduct).  The consultation closes on 5 October 2023.

The Code of Conduct sets out 6 principles (the Principles) with the aim of:

• improving the availability and quality of information provided to investors at both entity and product levels;
• improving market integrity though enhanced transparency, good governance, and sound systems and controls; and
• improving competition through better comparability of products and providers.

The Code of Conduct is structured around four key outcomes, namely:

• Good governance – ESG ratings and data products providers are expected to ensure appropriate governance arrangements are in place that enable them to promote and uphold the Principles, and the overall objectives of the Code.
• Systems and controls – ESG ratings and data products providers are expected to adopt and implement written policies and procedures designed to help ensure the issuance of high quality ESG ratings and data products.
• Management of conflicts of interest – ESG ratings and data products providers are expected to identify, avoid or appropriately manage, mitigate and disclose actual or potential conflicts of interest that may compromise the independence and objectivity of ESG ratings and data products providers’ operations.
• Transparency – ESG ratings and data products providers are expected to make adequate levels of public disclosure and transparency a priority for their ESG ratings and data products.

The UK Financial Conduct Authority (FCA) has welcomed the consultation on the Code of Conduct. HM Treasury has also recently closed a consultation on whether the FCA’s regulatory remit should encompass ESG rating providers.  The FCA intends to work closely with HM Treasury as they consider the responses and next steps.

Click here to read on the DRWG consultation.

Click here to read the DRWG Steering Committee press release.

Click here to read the FCA press release.