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Nov 28, 2022

UK’s new ESG code of conduct could put pressure on ratings providers

FCA calls for ‘greater transparency and trust’ in ESG data

UK regulator the Financial Conduct Authority (FCA) has announced the appointment of a dedicated independent group to work on the development of a code of conduct for ESG data ratings and providers.

The aim is to introduce a ‘regulatory oversight’ to foster ‘greater transparency and trust in the markets for ESG data and ratings services,’ the FCA says in a statement. The agency – which currently does not regulate ESG data and ratings providers – adds that earlier this year it supported the government proposal on regulating service providers.

‘If the Treasury extends our regulatory perimeter, we commit to take the necessary steps to develop and consult on a proportionate and effective regulatory regime, with a focus on outcomes in areas highlighted in the International Organization of Securities Commissions’ (IOSCO) recommendations,’ says the FCA.

‘These include transparency, good governance, management of conflicts of interest and systems and controls.’

The group responsible for the development of the code includes the International Capital Market Association and the International Regulatory Strategy Group (IRSG). The latter has been appointed as the secretariat leading the work and the FCA says IRSG will ensure ‘an unbiased and balanced representation of all key stakeholder groups.’

Earlier this year the IRSG also called for the ESG ratings industry to be regulated, amid concerns around transparency, a lack of consistency in the data and lack of clarity for investors.

The new code of conduct would ‘seek to be internationally consistent’ by referring to IOSCO’s recommendations and following developments in other jurisdictions such as the EU.

While the government considers whether it wants to extend the regulator’s ESG responsibilities, the FCA is working to ‘convene, support and encourage’ data and ratings providers to develop and follow a voluntary code of conduct.