The code aims to improve the reliability of ESG-related information used by licensed corporations in their investment decisions.
Hong Kong’s Securities and Futures Commission (SFC) and International Capital Market Association (ICMA) have confirmed a collaboration on the development of an industry-led voluntary code of conduct for ESG ratings and data products providers.
Under the partnership, SFC will provide support and sponsor ICMA, which will form a working group to develop an ESG code of conduct.
The initiative is the culmination of the SFC’s fact-finding exercise and industry outreach conducted since mid-2022 to understand matters related to the ESG ratings and data products providers, which are not regulated by the SFC.
Data quality, greenwashing concerns
In its announcement, the SFC said the exercise found that surveyed asset managers highlighted common concerns about data quality, transparency, and conflicts of interest management of the providers, and that the International Organization of Securities Commissions (IOSCO) recommendations should be encouraged for adoption by ESG ratings and data product providers.
The key observations from the exercise and proposed way forward for the providers are summarised in a report published by the SFC alongside the announcement. The SFC said the so-called ‘Voluntary Code of Conduct’ (VCoC) would be developed via an industry-led working group, namely the Hong Kong ESG Ratings and Data Products Providers VCoC Working Group (VCWG).
ICMA has been designated to act as the secretariat of the VCWG. The secretariat will convene and lead the VCWG, which comprises representatives from local, mainland China and other international ESG ratings and data products providers as well as key users from the local financial industry.
The proposed VCoC will align with international best practices as recommended by the IOSCO and relevant expectations introduced in other major jurisdictions.
The SFC, the Hong Kong Monetary Authority (HKMA), the Insurance Authority (IA), CLP Holdings and Swire Properties will sit as observers to the VCWG.
The proposed VCoC, which will be open for ESG ratings and data products providers to sign up voluntarily, is expected to provide a streamlined and consistent basis for asset managers to conduct due diligence or on-going assessment on ESG service providers.
Julia Leung, CEO at the SFC, noted that the voluntary code of conduct would help strengthen the transparency, quality and reliability of ESG information used by licensed corporations in their investment decisions.
“This is an important initiative to mitigate the risk of greenwashing in investment products.”
In response, the ICMA said it is to convene a working group to lead the development of a globally consistent, interoperable, and proportionate voluntary code of conduct for ESG ratings and data product providers, sponsored by the SFC.
“The working group’s aim will be to develop and promote a globally consistent, interoperable, and proportionate voluntary code of conduct for ESG ratings and data product providers providing products and/or services in Hong Kong.”
ICMA stressed that the voluntary code of conduct will be based on the recommendations from the IOSCO’s report on ESG ratings and data product providers.
The VCWG will convene its first meeting in November 2023, and seeks to release a draft code for public consultation within three months.
Nicholas Pfaff, Deputy CEO and Head of Sustainable Finance at ICMA, said the association looks forward to helping coordinate the working group sponsored by the SFC.
“We will contribute our considerable experience in bringing about industry-led standards and our global expertise in sustainable finance.”
The participants of the VCWG include HSBC, BOCHK Asset Management, CDP, S&P Global, Hang Seng Indexes, Segantii Capital Management and China Chengxin Green Finance Technology (Beijing), among others.