Industry Updates

IOSCO calls for tighter regulation of ESG data providers

Findings follow a consultation launched in August

Theo Andrew

a chessboard full of money

Regulators should intensify their focus on the use of ESG ratings and data products as well as their providers in a bid to stamp out greenwashing, the International Organisation of Securities Commissions (IOSCO) has said.

In a report published earlier this week, IOSCO, which groups together financial regulators from the US, Europe, Asia and Latin America, outlined 10 recommendations to make it easier to oversee the rapidly growing sector.   

The findings were published following a consultation with the market launched in August, in a bid to tackle the lack of transparency and consistency in data reporting on ESG across geographies.  

The watchdog suggested regulators should examine their existing regimes to consider if there is sufficient oversight of ESG ratings and data product providers.

It said regulators could potentially require them to address conflicts of interest between product offerings and their ESG consulting services.

In addition, IOSCO said regulators could consider making a providers’ data and information sources publicly disclosed in a bid to increase transparency.

It also said regulators should encourage industry participants to follow and develop an industry standard or code of conduct when it comes to conflicts of interest, product methodologies or product terminology.

Ashley Alder, chairman of IOSCO and CEO of the Hong Kong SFC, said: “ESG ratings and third party data products have played an important role in the ESG ecosystem so far, especially in the absence of consistent and comparable issuer disclosures.

“Their significance and usefulness will only continue as capital markets intensify efforts to support the shift towards a net zero economy.”

Earlier this month, a new global body was established to tackle greenwashing in financial products including a “comprehensive global baseline of sustainability-related disclosure standards”.

The International Sustainability Standards Board (ISSB), set up by the International Financial Reporting Standards (IFRS) Foundation Trust, came after mounting calls for higher quality and universal disclosure on ESG performance indicators.

In October, the UK government said it was considering taking a tough stance on ESG data providers by bringing them in under the regulation of the Financial Conduct Authority in a sign that some IOSCO members will look to go further than the board’s recommendations.

Research published by the Index Industry Association (IIA) in July also highlighted a lack of transparency and data standardisation as a major barrier to further uptake of ESG.

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