The Financial Conduct Authority (FCA) is to launch a group to develop a code of conduct for environmental, social and governance (ESG) data and ratings providers.
The move comes as more financial services firms integrate ESG into their activities and expand their dedicated products. The watchdog noted that these firms are increasingly reliant on third-party ESG data and ratings services, and in its June statement FS22/4: ESG integration in UK capital markets it called for regulatory oversight of certain providers to support greater transparency and trust in the market. The Treasury is considering extending the FCA’s regulatory reach.
The watchdog said that “to maintain momentum, we have worked to convene, support and encourage industry participants to develop and follow a voluntary code of conduct”. It also pledged to “take the necessary steps to develop and consult on a proportionate and effective regulatory regime”, focusing on recommendations made in the International Organisation of Securities Commissions’s (IOSCO) ESG Ratings and Data Products Providers: Final Report. These include transparency, good governance, managing conflicts of interest, and systems and controls.
The group, to be co-chaired by M&G, Moody’s, the London Stock Exchange Group and Slaughter and May, will include investors, ESG data and ratings providers, and rated entities. The International Capital Market Association and the International Regulatory Strategy Group have been appointed as secretariat and “will ensure an unbiased and balanced representation of all key stakeholder groups”.
The FCA said the code will be “internationally consistent” and take into account IOSCO’s recommendations, as well as jurisdictions such as Japan and the EU. The group will aim to meet for the first time later this year.