On 20 July 2022, the Financial Markets Standards Board (FMSB) published a spotlight review on ESG ratings.

The review aims to facilitate additional disclosure and transparency of ESG ratings’ methodologies and data collection processes, in order to enhance user understanding of ESG ratings and facilitate comparability across rating providers in wholesale financial markets.

The review builds on an existing body of work produced by regulators, standard setters and industry participants and it focuses on issues identified in the following areas:

• Output/objectives of ESG ratings.
• Data inputs.
• Methodology.
• Post-assessment rating process.

The review highlights:

• The varied use cases of ESG ratings.
• Issues associated with limited transparency and market understanding of ratings.
• The different objectives of rating products.
• The diversity between products with similar objectives.
• The impact of controversies on an issuer’s ESG rating can be material but little understood.
• Efforts to increase issuer ESG disclosure are likely to improve the quality of ESG ratings.
• Greater transparency helps to drive market solutions independent of regulation.