ICMA backs voluntary code of conduct for ESG ratings providers

ICMA and the International Regulatory Strategy Group launched a voluntary code of conduct for ESG ratings and data product providers, with consultation open from July 5 to October 5, 2023. The IOSCO-aligned code advances global harmonisation of ESG-ratings governance relevant to Indian issuers and investors using such products.

The International Capital Market Association (ICMA) supported the launch of a provisional voluntary code of conduct for ESG ratings and data product providers, the first of its kind, introduced by the ESG Data and Ratings Code of Conduct Working Group with backing from ICMA and the International Regulatory Strategy Group. The code aims to enhance consistency, transparency and accountability through improved systems, processes and controls. The Financial Conduct Authority commissioned the working group, whose consultation period runs from July 5, 2023 to October 5, 2023.

The code affects ESG ratings and data product providers, the issuers they assess and the investors relying on their outputs to gauge companies' sustainability efforts. Its principles cover good governance with effective conflict management, robust systems and controls for high-quality products, managing conflicts of interest to protect independence and objectivity, and transparency through public disclosure of methodologies and processes. The steering committee aligned the code with IOSCO recommendations and considered developments in Japan, Singapore and the EU to create a globally harmonised standard.

Stakeholders should review the draft code and submit comments before the October 5, 2023 consultation deadline by emailing [email protected], with the full code accessible via the IRSG website. ESG ratings and data providers should align governance, conflict-management and methodology-disclosure practices with the code. Indian issuers and investors using ESG ratings should monitor this IOSCO-aligned voluntary code alongside SEBI's domestic ESG-ratings regulations, as international harmonisation of ratings governance increasingly shapes the credibility and comparability of ESG assessments.

Key figure — Consultation period: July 5 to October 5, 2023