In a groundbreaking move, the International Capital Market Association (ICMA) has thrown its support behind the launch of a provisional voluntary code of conduct for ESG (Environmental, Social, and Governance) ratings and data product providers. The code, which is the first of its kind, has been introduced by the ESG Data and Ratings Code of Conduct Working Group (DRWG) with the backing of the ICMA and the International Regulatory Strategy Group (IRSG).
As sustainable finance gains prominence in the quest for net-zero goals, the demand for reliable ESG ratings and data products has surged. These products play a crucial role in outlining companies’ sustainability efforts to consumers and investors. The newly launched code of conduct aims to enhance consistency, transparency, and accountability in the financial services industry, instilling market confidence in the integrity of ESG ratings and data products through improved systems, processes, and controls.
The Code of Conduct outlines key best practice principles, including ensuring good governance with transparent and effective conflict management, implementing robust systems and controls for high-quality and consistent products, managing conflicts of interest that could compromise independence and objectivity, and prioritizing transparency through public disclosure of methodologies and processes.
The Financial Conduct Authority (FCA) commissioned the IRSG and ICMA to convene the DRWG, which is led by a Steering Committee consisting of Angela Brown, Global Head of ESG Products at Moody’s Analytics; Rob Marshall, Head of Sustainable Investing at M&G; Nick Bonsall, Partner Financial Institutions Group at Slaughter and May; and David Harris, Head of Sustainable Finance Strategic Initiatives at the London Stock Exchange Group.
The Steering Committee expressed its commitment to ensuring international consistency in the Code of Conduct by aligning it closely with the recommendations of the International Organization of Securities Commissions (IOSCO). The Committee also considered developments in jurisdictions such as Japan, Singapore, and the EU to create a globally harmonized standard for ESG ratings and data product providers.
Chris Hayward, Interim Co-Chair of the IRSG Council, emphasized the importance of a comprehensive and globally consistent code of conduct for ESG ratings and data. He noted that such a code will support accurate risk assessment, enhance investor confidence, and mobilize capital for the urgent transition to a net-zero future.
Sacha Sadan, FCA Director of ESG, hailed the launch as a significant step towards transparency and trust in the expanding market for ESG data and ratings products. Sadan also highlighted the code’s international consistency, ensuring its relevance across jurisdictions. The consultation period for the draft Code of Conduct will be open from July 5, 2023, to October 5, 2023. Stakeholders are encouraged to provide their comments by emailing drwgsecretariat@icmagroup.org. The full Code of Conduct can be accessed at the following link: Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers (irsg.co.uk)