An industry group convened under orders of the FCA has launched a provisional, voluntary code of conduct for ESG ratings and data product providers.
The ESG Data and Ratings Code of Conduct Working Group (DRWG) has opened a consultation on the code until October 5, in a bid to enable confidence in the integrity of ESG ratings and data products.
The Financial Conduct Authority (FCA’s) director of ESG, Sacha Sadan, described the consultation as an “important step” in increasing transparency and trust in the growing market for ESG data and ratings.
According to the code’s fourth principle on transparency for example, providers should prioritise adequate levels of public disclosure and transparency for their products, including their methodologies and processes so users can understand what the product is and how it is produced, including any potential conflicts of interest.
The increasingly important role of ESG factors in financial markets is leading to a rapid increase in the use of and demand for related services such as ESG ratings and data products, as well as an increase in the scrutiny of their providers, the DRWG notes.
“As the landscape changes, concerns around the transparency, quality and reliability of ESG ratings and data products are emerging, calling for closer regulatory scrutiny of their providers,” the consultation document reads.
“A code of conduct can help improve trust in these products, especially those relevant to the financial services sector, to guide investors in allocating their money to the right assets as well to alleviate the risk of greenwashing.”
The consultation on DRWG’s draft code comes just days after HM Treasury closed its separate, but similar, consultation on a future regulatory regime for ESG ratings providers on June 30.
The FCA says that introducing regulation would take time if it is agreed that their regulatory perimeter should be extended to include ESG ratings providers.
“The code will play an important role in raising standards in the short-term, as well as continuing to apply to any firms that fall out of the scope of potential future regulation,” the FCA added.
Chloe Cheung is a senior features writer at FTAdviser
