Industry group launches Code of Conduct for ESG Ratings and Data Products Providers

Published 14 Dec 2023

The International Regulatory Strategy Group (IRSG) has supported the launch of a voluntary, globally consistent Code of Conduct for ESG (Environmental, Social and Governance) ratings and data products providers.

Sustainable finance is a key pillar in the drive for net zero, creating a growing demand for reliable ESG ratings and data products which clearly outline companies’ sustainability efforts to consumers and investors. As a result, the role and influence of ESG ratings and data products providers in financial markets have grown significantly.

At the same time, there have been calls for closer scrutiny of the transparency, quality and reliability of ESG ratings and data products, to provide the market with confidence.

Against this backdrop, the FCA (Financial Conduct Authority) commissioned the IRSG and the International Capital Markets Association (ICMA) in 2022 to convene the ESG Data and Ratings Code of Conduct Working Group (DRWG) which is co-chaired by a Steering Committee consisting of Moody’s; M&G; Slaughter and May and the London Stock Exchange Group. The working group brings together stakeholders such as ratings and data providers, asset managers, asset owners, banks, corporate rated entities, NGOs, academics and other organisations.

The Code, which has been published following a three months consultation period, aims to enhance consistency, transparency, and accountability in the financial services industry to ensure that the market is able to have confidence in the integrity of ESG Ratings and Data products through enhanced systems, processes and controls.

The Steering Committee said:

“Members of the DRWG have sought to ensure that the Code of Conduct is internationally consistent, primarily by basing the Code of Conduct on the International Organization of Securities Commissions’ recommendations. The members also sought to bear in mind, in developing the Code, related developments in jurisdictions such as Japan, the EU, Singapore, and Hong Kong. We hope the Code of Conduct, although having roots in the UK, can provide an international model and play a role in helping to ensure consistent global standards for ESG ratings and data product providers”

Farmida Bi, CBE, Chair of the IRSG Council, said:

“A comprehensive, proportionate and globally consistent voluntary code of conduct for ESG ratings and data will help ensure this market is fit for purpose, in turn supporting market practitioners to assess the risks more accurately. This code will support investor confidence in ESG ratings and data to unlock capital for the urgent net zero transition. The IRSG was delighted to support this important industry-led initiative by jointly providing the Secretariat.

Sacha Sadan, FCA Director of Environmental, Social and Governance, said: 

“As part of the FCA ESG Strategy, we committed to using our voice and influence to promote globally aligned solutions where possible. With its strong focus on international consistency, this industry-owned code will play a key role in increasing transparency and trust in the ESG data and ratings market. We encourage all ESG data and ratings providers to engage with and sign up to the code.”

The Code of Conduct which includes further details on how to become signatories to the Code, and the Feedback Statement can be read here. The Code is owned and maintained by ICMA, and a signatories list will be available on ICMA’s website.