DRWG Code of Conduct Offers Global Base for ESG Ratings

Produced by an ICMA and IRSG co-working group, the code aims to improve the availability and quality of information provided to investors.

A new code of conduct for ESG ratings and data products providers could help to harmonise regulation around their practices globally, industry participants have told ESG Investor. 

Published last month, the code was developed by the ESG Data and Ratings Working Group, convened by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG).  

ICMA and IRSG had been commissioned by the UK’s Financial Conduct Authority in 2022 to create an industry-led working group and act as the secretariat for the development of a voluntary code of conduct for ESG ratings and data providers globally. 

The finalisation of the code, which also aims to improve the availability and quality of information provided to investors at product and entity levels, followed a three-month consultation period after a first draft had been published in July last year. Market participants had flagged concerns around regulation fragmentation risks, highlighting the importance of interoperability between domestic and international standards. 

“Any regulation that’s coming could perhaps look to the code and build on that, which would then make all the codes and all the regulations more consistent,” said Simone Utermarck, Senior Director for Sustainable Finance at ICMA.   

The majority of respondents to the consultation also noted the code’s potential to serve as a baseline for rules and regulations that can be implemented by ratings and data products providers operating across various jurisdictions, and for their respective regulatory authorities.  

Following the publication of the code, ICMA took ownership of its finalised version.

“The association was a natural choice to own the code, given its experience in bringing about and maintaining industry-led standards,” said Utermarck. 

Improving international interoperability 

The code’s launch also follows the finalisation by the Monetary Authority of Singapore (MAS) of its own code of conduct for ESG ratings and data products providers, and the unveiling of a draft law to regulate ESG raters in the EU. 

ICMA has hosted MAS’ code of conduct on its website since October last year. Separately, the association is working with the Hong Kong Securities and Futures Commission and an industry-led working group to assess whether the voluntary code of conduct could work as a baseline for a similar code in Hong Kong. 

Discussions around the DRWG code involved many international providers that will need to adhere to or comply with the new recommendations, and eventually, new regulation.   

“For international interoperability, it’s helpful that a lot of these codes are coming together under ICMA either owning them or hosting them,” Utermarck said.  

ICMA expects companies and organisations to formally sign up to and implement the code by the end of 2024. The implementation period for the code is six months for ESG ratings providers, and 12 months for ESG data products providers.

“We’ve seen time and again criticism that ESG ratings are not transparent enough,” Utermarck added. “By signing up to this code and following the voluntary recommendations in it, providers can show more transparency and help market participants to compare methodologies better.”  

The code will, however, be subject to regular reviews and updates from ICMA in the future, in line with future regulatory developments. “Depending on what will be developed, we might reach a point where this voluntary code will no longer be necessary,” Utermarck explained.  

Recent significant developments in the ESG data and ratings space include the ECON committee’s proposed changes to the EU Commission’s draft rules on ESG ratings, such as the disaggregation of E, S and G scores.  

In the UK, HM Treasury launched a three-month consultation on a future regulatory regime for ratings providers in March last year. Further developments could spring up this year on the basis of the consultation results. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap