IOSCO Issues Final Report on Regulating ESG Ratings and Data

Includes recommendation for regulators to ask ESG ratings and data providers for more transparent methodologies.

The International Organisation of Securities Commissions (IOSCO) has published a set of recommendations for securities regulators to consider in their oversight of ESG ratings and data product providers.

The recommendations follow a public consultation issued in July to address ongoing issues with ESG data relevance, reliability and comparability.

The market for ESG ratings and data has grown over the past few years, in part due to a lack of consistent information disclosures at the entity level, IOSCO says.

As this market does not typically fall within the remit of securities regulators, IOSCO has set out recommendations on what regulators could consider when developing frameworks to help to increase trust in ESG ratings and data going forward.

The recommendations for regulators include:

  • focusing greater attention on the use of ESG ratings and data products and the activities of ESG rating and data products providers in their jurisdictions
  • promoting more transparency regarding the methodologies that ESG ratings and data product providers use in developing their products
  • ensuring ESG rating and data products providers have appropriate procedures in place for managing conflicts of interest
  • improving communication channels between providers and the entities covered by their ESG ratings or data products, without undermining impartiality
  • improving sustainability-related disclosures of entities that are subject to assessment by ESG ratings and data products providers

“This report represents an important milestone in the development of ESG markets,” says Erik Thedéen, Chair of the IOSCO Sustainable Finance Task Force and Director-General of Sweden’s Financial Supervisory Authority. “Investors should be able to understand and trust the ESG ratings and data products they use; implementation of IOSCO’s recommendations will help achieve that outcome.”

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