IOSCO Recommendations for ESG Ratings and Data Providers

The International Organization of Securities Commissions (IOSCO), the leading international policy forum and global standards setter for securities regulators, is encouraging regulators to increase their focus on overseeing the providers of ESG ratings and data. Through their recent publication, ESG Ratings and Data Products Providers – Final Report, the organization presents a broad range of recommendations for both regulators and ESG ratings and data providers,.  These aim to help increase trust and transparency in the rapidly expanding ESG market.

In their report, the IOSCO recognised that the topic of ESG ratings and data is not one that securities regulators would ordinarily be concerned with. However, the IOSCO noted that given the rapidly evolving role these providers have within global securities markets, the involvement of regulators could provide stakeholders with much-needed confidence in ESG ratings and data.  KPMG estimates that there are 160 ESG ratings and data products providers worldwide.  This includes both for-profit and non-profit companies that offer large/specialised ESG products.

The IOSCO’s recommendations include promoting greater transparency around methodologies that ESG ratings and data providers use in developing their products; ensuring suitable procedures for managing conflicts of interest, including identifying and disclosing conflicts of interest; improving communication channels between providers and the entities covered by ESG ratings and data without undermining impartiality.

The IOSCO observed that how the recommendations may be implemented in different jurisdictions will depend on a range of factors, including the priorities of local stakeholders, local market circumstances and jurisdictions’ legal and regulatory frameworks. In particular, the IOSCO urges regulators to look at their existing regulatory frameworks to establish whether they are adequately equipped to deal with issues in relation to ESG ratings and data providers, or whether additional clarity or new regimes are required.

Erik Thedéen, chair of the IOSCO’s Sustainable Finance Task Force, said the report represented an important milestone in the development of ESG markets:  “Investors should be able to understand and trust the ESG ratings and data products they use; implementation of the IOSCO’s recommendations will help achieve that outcome.”