Global industry trade groups are proposing a code of conduct for ESG ratings to address regulators’ concerns about greenwashing and improve the quality of ESG ratings and data.
An industry group known as the ESG Data and Ratings Working Group was mandated by the U.K.’s Financial Conduct Authority (FCA) to develop a voluntary code for ESG ratings. The group, which was backed by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG), launched a consultation Wednesday on its proposed code.
The code aims to set standards for ESG ratings and data product providers that improves the availability and quality of information provided to investors; enhances market integrity through increased transparency, governance and controls that target conflicts of interest; and bolsters competition by making products and providers more comparable.
“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 as to alleviate the risk of greenwashing,” the paper said.
The group said its code is based on recommendations from the International Organization of Securities Commissions (IOSCO) in an effort to craft a uniform global approach.
“We hope the code of conduct will be a significant step in the development of consistent global standards for ESG ratings and data product providers,” said the working group’s steering committee in a release.
In a statement, the FCA said it welcomed the proposed code.
“As firms grow increasingly reliant on third party ESG data and ratings products, we support this industry-led solution to increase transparency and trust in this growing market,” the regulator said.
The deadline for feedback on the consultation is Oct. 5. The code is to be finalized by the end of 2023.