The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) have launched a voluntary code of conduct for ESG ratings and data products providers.

The Code focuses on promoting transparency, good governance, management of conflicts of interest, and strengthening systems and controls in the sector and is intended to be internationally interoperable and could be used by jurisdictions where no local Code or regulation is in place.

The Code of Conduct – which is owned and maintained by the ICMA – is based on International Organization of Securities Commissions’s (IOSCO) recommendations from its November 2021 final report.

IOSCO’s final report contains 10 recommendations in total, whereas the code only focuses on the seven pertaining to “ESG ratings and data products providers” rather than on regulators, or other market participants such as rated entities or users of ratings and data products.

Nicholas Pfaff, deputy chief executive officer and head of sustainable finance at ICMA, said the launch of the Code “marks an important step in further promoting internationally consistent standards across sustainable finance”.

“In the growing market for ESG ratings and data products, the Code will be vital for increasing transparency and trust,” he added.

In November 2022, the Financial Conduct Authority (FCA) comissioned ICMA and IRSG to convene an industry-led working group – called the Data and Ratings Working Group (DRWG) – and to act as the secretariat for the development of a voluntary code of conduct for ESG data and ratings providers for international use.

To that end the working group brought together stakeholders from the UK, the European Union and the US representing ESG ratings and data products providers, rated entities, academics, and users of ESG data and ratings, such as asset managers, asset owners and banks to develop the code.

The FCA, the UK Treasury and other national and international financial regulators acted as observers as the code was agreed.

Sacha Sadan, FCA director of ESG, said: “As part of the FCA ESG strategy, we committed to using our voice and influence to promote globally aligned solutions where possible. ‘With its strong focus on international consistency, this industry-owned code will play a key role in increasing transparency and trust in the ESG data and ratings market.”

He added: “We encourage all ESG data and ratings providers to engage with and sign up to the code.”

In the first half of 2023, the UK government consulted on whether and how the FCA’s regulatory perimeter should be extended to include ESG ratings providers. The FCA continues to work closely with the government as it considers its next steps.

The code launched yesterday will provide a benchmark for any providers that fall outside the scope of potential future regulation.

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