Sustainability Community

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Great questions and post Katy.  Answer to how long until regulators regulate UK ESG ratings - not long.  HM Treasury CP on regulating ESG ratings provider closed this week - the IA and PIMFA industry bodies have clearly called for not just regulating ESG Rating providers, but also ESG data providers given the importance of ESG related data being used by investors in investor decision making.  For further insight into some of the considerations for investment and wealth management firms, see PIMFA's response here: PIMFA-response-HMT-consultation-on-regulating-ESG-ratings-providers.pdf  and summary of the Investment Associations response here IA 'strongly opposes' including fund house ESG ratings in planned rules   - ESG Clarity

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Great questions and post Katy.  Answer to how long until regulators regulate UK ESG ratings - not long.  HM Treasury CP on regulating ESG ratings provider closed this week - the IA and PIMFA industry bodies have clearly called for not just regulating ESG Rating providers, but also ESG data providers given the importance of ESG related data being used by investors in investor decision making.  For further insight into some of the considerations for investment and wealth management firms, see PIMFA's response here: PIMFA-response-HMT-consultation-on-regulating-ESG-ratings-providers.pdf  and summary of the Investment Associations response here IA 'strongly opposes' including fund house ESG ratings in planned rules   - ESG Clarity

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Hi Katy and All,

Important issue and good questions. Some thoughts and personal opinions.

Voluntary Codes are of conduct are prefered for a number of reasons but have challenges in winning and maintaining trust. 

Those advocating them believe they are better at understanding the issues and shaping the rules but at the same time they are influecnce by their own self interest and subject to common behavioural biases and group think. To mitigate this the code should be developed with the input of all stakeholders even if its application is voluntary.  The observation that all stakeholders should contribute is true of both mandatory rules and voluntary codes. 

Voluntary Codes can perhaps accomadate industry nuances better and maybe able to facilitate dynamic updating faster than a regulatory and legal fram work subject to final approval of non experts.  ESG and the metrics proposed to judge the components of both financial and non financial risks and impacts are imature and likely to evolve with use, understanding and innovation.

Focus is on disclosure and transparency regarding both conflicts of interest and methadology  is at the heart of building a trusted sustainable finance system and the language and reliability of information supporting it.  This means any code or regulation is only as good as the actual behaviour and adherance of those signed up to it and the outcomes it generates,  Outcomes are both in objective goals and the building and maintaing of a trusted system. 

The weakness of a vouluntary code is that it maybe seen as self serving and hence lose the trust of stakeholders.  Independent oversight and a mechanism for accountability and governance are essential, calling out and acting on failure to live upto the code or regulation is a key to maintaining trust.  Government and civil society can both play a role in this, government as it has powers of intervention civil society in that it can challenge, question and call out. 

To be effective a voluntary code for an industry should co-operate and accept independent oversight and would be wise to co-operate with and positively engage with stakeholder and civil society and any organisations that provide oversight and challenge.  Trust is built on trustworthy behaviour, hard won and easily lost, so its in the industry's long term interest to make sure the industry as a  whole is trusted, However leniency on implementation and governence will undermine any system of control.  The ambiguity around many of the keywords in the ESG, sustainability and impact lexigon in common use mean clarity of meaning and use are needed when context and meaning are left open it is an open goal for manipulation and letting recipients of material see what they want to, an easy source of both unintended and intended greenwashing.

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Hi Chris,

Thanks for continuing the discussion.  You are the right, this CFAUK paper has a broad application to the whole financial services sector.

But I wanted to come back to you on your other points:

Your first point regarding investor 'backlash' or market forces to police ESG ratings quality: I'm not convinced that the HMT/FCA can rely on this.  For a start, it is retrospective, it mostly only addresses issues once damage has been done. Perhaps more importantly, 'investors' are not homogenous.  I agree that professional, institutional and active investors should have the skills and processes to identify poor ESG ratings and then potentially take action to correct it by either simply stopping their subscription or taking a more robust course of action.  However, not all investors will be able to do this.  Retail investors and/or passive investors in funds that build portfolios according to rules around ESG ratings may either lack the skills to spot a bad rating or have to follow rules that ignore their quality.  The whole drive of HM Treasury's proposed regulation is to protect those investors. Caveat emptor as a principle serves a good purpose and investors have to shoulder some responsibility for what they invest in, but a well-functioning market should not permit the systematic production of misleading ratings and it should ensure that ESG ratings firms manage their conflicts of interest properly in the same way that credit ratings agencies now have to.

As to your second point of 'gold plating': this is a risk, I agree, and unfortunately there are numerous examples of this practice in the past where certain countries have arguably used regulation to protect their home market from overseas suppliers in the name of defending their consumers.  It is therefore important that the FCA and other leading global regulators work closely together, aligned to the IOSCO principles as they bring these regulations into place.

Hope I'm making sense and that I understood your points correctly.

Best Wishes,

Andy

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Andy - completely agree both a code and regulation is needed. 

Some of the earlier comments around trust in data is also important and responsibility along the value chain of information also needs to be considered.  In particular, in the context of regulated firms and individuals as investment managers or providing financial advice, including MiFID suitability and product governance requirements, investors need accurate and reliable ESG data for their investment decisions etc.  Some of these considerations are raised in PIMFA's response to  HMT's consultation, including ESG data providers (extract copied below). 

Secondly, a recent study and whitepaper I came across from Clarity AI shows some concerning differences around reported Scope 1 GHG emissions data amongst 3 leading ESG data providers (this is the easier ESG data to collect, let alone reliability and consistency of Scope 3 reported data) Case Study | The 'E' in ESG: Sourcing Reliable Data: 

·       13% of data points showed a discrepancy of >20% on Co2 Scope 1 reported emissions data (compared 6500 companies over 5 years, and 30,000 data points); reliability issues were found in 42% of data points where the differences were >1% 

Finally, the UN PRI has recently produced a Investor Needs Data Framework on understanding data needs for responsible investors, including the importance of reliable data and expectations around assurance and data quality in terms of fair representation, comparability, and verifiability DRIVING MEANINGFUL DATA Understanding the data needs of responsible investors: The PRI's investor data needs framework

Regards
James

PIMFA's response to HMT's consultation on the Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers
Description of ESG ratings - extend regulation to include data providers 
We broadly agree with HM Treasury's proposal that an ESG rating in the context of a new regulated activity would cover an assessment regarding one or more environmental, social, and governance factors, whether or not it is labelled as such. However, we also have concerns regarding the proposal 
to exclude raw ESG data, i.e. data that is minimally processed where no separate assessment is provided, which would also exclude estimates and proxy data. With best practice evolving and new standards developing at rapid pace, there appears to be an assumption amongst the regulators that data quality and availability will improve over time. This consultation refers to IOSCO guidance which notes that firms should rely on their own due diligence 
as to the accuracy of data provided by third parties and the policies they have around capturing and processing data. The expectation is that mandatory disclosures by real world companies will become standard in future, with ISSB standards and audited data, and that many of the issues around data 
quality will be minimised. However, the eco-system is not complete yet.

There is an issue of data liability to be addressed and dependency on third party providers for ESG related data by financial institutions and responsibility within the overall value chain. Raw ESG data that is consumed by firms in their investment process relies on the provision from multiple third-party 
data providers for thousands of listed and unlisted securities and associated ESG data attributes which are growing exponentially. This calls for clarity regarding the liability for the data. ESG ratings and data providers should have some responsibility and liability for passing on public information and financial institutions should be able to rely on this information for the provision of services and data they pay for.

Wealth managers and financial advisors have an obligation to provide suitable investment advice and ongoing suitability assessment regarding investment decisions in accordance with a client's investment risk appetite, objectives, and individual preferences. There are potential regulatory and legal risks, and 
liability for actions taken for making investment decisions and recommendations based on poor raw data, even if this is supposedly less complicated type of data. The responsibility for processed data should be with those distributing it i.e., ESG ratings and data providers.

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Andy - completely agree both a code and regulation is needed. 

Some of the earlier comments around trust in data is also important and responsibility along the value chain of information also needs to be considered.  In particular, in the context of regulated firms and individuals as investment managers or providing financial advice, including MiFID suitability and product governance requirements, investors need accurate and reliable ESG data for their investment decisions etc.  Some of these considerations are raised in PIMFA's response to  HMT's consultation, including ESG data providers (extract copied below). 

Secondly, a recent study and whitepaper I came across from Clarity AI shows some concerning differences around reported Scope 1 GHG emissions data amongst 3 leading ESG data providers (this is the easier ESG data to collect, let alone reliability and consistency of Scope 3 reported data) Case Study | The 'E' in ESG: Sourcing Reliable Data: 

·       13% of data points showed a discrepancy of >20% on Co2 Scope 1 reported emissions data (compared 6500 companies over 5 years, and 30,000 data points); reliability issues were found in 42% of data points where the differences were >1% 

Finally, the UN PRI has recently produced a Investor Needs Data Framework on understanding data needs for responsible investors, including the importance of reliable data and expectations around assurance and data quality in terms of fair representation, comparability, and verifiability DRIVING MEANINGFUL DATA Understanding the data needs of responsible investors: The PRI's investor data needs framework

Regards
James

PIMFA's response to HMT's consultation on the Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers
Description of ESG ratings - extend regulation to include data providers 
We broadly agree with HM Treasury's proposal that an ESG rating in the context of a new regulated activity would cover an assessment regarding one or more environmental, social, and governance factors, whether or not it is labelled as such. However, we also have concerns regarding the proposal 
to exclude raw ESG data, i.e. data that is minimally processed where no separate assessment is provided, which would also exclude estimates and proxy data. With best practice evolving and new standards developing at rapid pace, there appears to be an assumption amongst the regulators that data quality and availability will improve over time. This consultation refers to IOSCO guidance which notes that firms should rely on their own due diligence 
as to the accuracy of data provided by third parties and the policies they have around capturing and processing data. The expectation is that mandatory disclosures by real world companies will become standard in future, with ISSB standards and audited data, and that many of the issues around data 
quality will be minimised. However, the eco-system is not complete yet.

There is an issue of data liability to be addressed and dependency on third party providers for ESG related data by financial institutions and responsibility within the overall value chain. Raw ESG data that is consumed by firms in their investment process relies on the provision from multiple third-party 
data providers for thousands of listed and unlisted securities and associated ESG data attributes which are growing exponentially. This calls for clarity regarding the liability for the data. ESG ratings and data providers should have some responsibility and liability for passing on public information and financial institutions should be able to rely on this information for the provision of services and data they pay for.

Wealth managers and financial advisors have an obligation to provide suitable investment advice and ongoing suitability assessment regarding investment decisions in accordance with a client's investment risk appetite, objectives, and individual preferences. There are potential regulatory and legal risks, and 
liability for actions taken for making investment decisions and recommendations based on poor raw data, even if this is supposedly less complicated type of data. The responsibility for processed data should be with those distributing it i.e., ESG ratings and data providers.

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Voluntary codes of conduct are great to have, but shouldn't be solely relied upon.

Much wider regulation is needed to help bridge the methodology gap between different providers and ensure as much standartization as possible. This will increase the trust from both investors and companies who would be able to clearly read signals on ESG matters.

Definitely a hot topic for regulators as they are trying lay the groundwork for implementation.

On a related note, The Monetary Authority of Singapore (MAS) has similarly proposed a code of conduct for ESG Ratings and Data Providers.

It will establish minimum industry standards for transparency in methodologies and data sources, governance, and conflicts of interest.

https://financefeeds.com/singapores-mas-proposes-code-of-conduct-for-esg-ratings-and-data-products/

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!

Hi Katy,

I'm thinking of hosting a roundtable at CFAUK's office to discuss this topic more and with the intention of responding to ICMA and IRSG's joint consultation on their "Draft Voluntary Code of Conduct for ESG ratings Providers & data Product Providers".  You'd be an ideal person to join.  Would you be interested?  Thinking of a meeting over sandwiches one lunchtime during week commencing 11th September.

If you could let me know your email address I will include you in a circulation with more details.

Best Wishes,

Andy Burton, CFA

An article in the FT yesterday 'Rating the ESG rating agencies' detailed academics responses to challenges facing the ESG rating agencies, and concludes that regulatory actions are needed to standardise reporting, maintain a competitive market, emphasise transparency, address conflicts of interest and refine methodologies.

Today the ICMA and International Regulatory Strategy Group (IRSG)'s ESG Data and Ratings Working Group (DRWG) released a Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers for consultation. The 6 key principles include good governance, securing quality, conflicts of interest, transparency, confidentiality and engagement. Is this the answer the academics were looking for?

Sacha Sadan, the FCA director of ESG, said "today is an important step in increasing transparency and trust in the growing market for ESG data and ratings products." The draft voluntary code's creator, the ESG DRWG, is chaired by M&G and Moody's, and its vice chairs are from LSEG and Slaughter and May. 

On Monday, Indian regulators adopted official regulation for ESG ratings providers, among the first countries to adopt mandatory regulations.

So my questions to you are: can a self-regulated model work? Do voluntary codes go far enough to increase trust in the market? How long until regulators step and and implement mandatory standards in UK ESG ratings markets? Interested to hear thoughts!