On 23 November 2021, the Board of the International Organisation of Securities Commissions (IOSCO) published a final report with a set of recommendations calling for oversight of ESG Ratings and Data Product Providers.
The use of ESG ratings and data products has grown considerably in response to investors’ mounting interest in investing in companies that take account of sustainability in the way they are run. This part of the market does not currently fall within the typical remit of securities regulators, IOSCO suggests that regulators could consider focusing more attention on the use of ESG ratings and data products and their activities to increase trust in them going forward.
IOSCO has set out specific recommendations on what regulators could consider when developing their frameworks. These recommendations include promoting more transparency regarding methodologies that ESG ratings and data product providers use in developing their products; ensuring their conflict management procedures are appropriate and improving communication channels between providers and the entities covered by their ESG ratings or data products without undermining their impartiality.
The final report is structured around the following chapters:
- Chapter 1 provides an overview of the market for ESG ratings and data products.
- Chapter 2 discusses the current practices of ESG ratings and data product providers.
- Chapter 3 discusses observations in relation to users of ESG ratings and ESG data products.
- Chapter 4 elaborates on the interactions between companies that are the subject of ESG ratings or data products and ESG ratings and data product providers.
- Chapter 5 discusses areas for improvement highlighted in the IOSCO’s fact-finding exercise and sets out recommendations for securities markets regulators, ESG ratings and data products providers, users of these products and services, and companies subject to these providers’ review.