On 5 July 2023, the International Regulatory Strategic Group (IRSG) published a consultation paper on a draft voluntary code of conduct for ESG ratings and data product providers.
This draft code of conduct aims to foster a trusted, efficient and transparent market, by introducing clear standards for ESG ratings and data products providers and also clarifies how such providers can interact with wider market participants. Based on the International Organisation of Securities Commissions’ (IOSCO) recommendations, the draft code sets out six principles with the aim of:
- Improving the availability and quality of information provided to investors at product and entity levels.
- Enhancing market integrity through increased transparency, good governance and sound systems and controls.
- Improving competition through better comparability of products and providers.
By basing the draft code heavily on the IOSCO recommendations, it is intended to be internationally interoperable and it is hoped that it can represent an important step towards a globally consistent regulatory framework.
In line with IOSCO’s recommendations, the draft code is structured around four key outcomes:
- Good governance: ESG ratings and data providers are expected to ensure appropriate governance arrangements are in place that enable them to promote and uphold the principles and overall objectives of the code.
- Systems and controls: ESG ratings and data products providers are expected to adopt and implement written policies and procedures designed to help ensure the issuance of high quality ESG ratings and data products.
- Managing conflicts of interest: ESG ratings and data products providers are expected to identify, avoid or appropriately manage, mitigate and disclose actual or potential conflicts of interest that may compromise the independence and objectivity of ESG ratings and data products providers’ operations.
- Transparency: ESG ratings and data products providers are expected to make adequate levels of public disclosure and transparency a priority for their ESG ratings and data products. This includes their methodologies and processes to enable users to understand the product and any associated potential conflicts of interest, while managing a balance with respect to proprietary or confidential information, data and methodologies.