The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers. The proposed recommendations are intended to mitigate risks stemming from ESG activities; they are also intended to address certain challenges faced by the users of products and services of ESG ratings and data providers and by the companies that are the subject of these ESG ratings and data products. The comment period for this consultation report ends on September 06, 2021.
The consultation report is intend to assist IOSCO members in understanding the implications of the activities of ESG ratings and data providers and in establishing frameworks to mitigate risks stemming from these activities. The report proposes examines the market landscape for ESG ratings and data providers, before moving on to make recommendations for securities markets regulators, ESG rating and data products providers, users of these products and services, and companies subject to these providers’ review. The report recommends that regulators of ESG ratings and data products could consider to enhance focus on the use of ESG ratings and data products and ESG ratings and data product providers in their jurisdictions. Moreover, ESG ratings and data products providers could consider
- issuing high-quality ESG ratings and data products based on publicly disclosed data sources and other information sources, where necessary, using transparent and defined methodologies.
- ensuring their decisions are, to the best of their knowledge, independent and free from political or economic pressures and from conflicts of interest arising due to the ESG ratings and data products providers’ organizational structure, business, or financial activities, or the financial interests of the ESG ratings and ESG data products providers’ employees.
- avoiding activities, procedures, or relationships that may compromise, or appear to compromise, the independence and objectivity of the ESG rating and ESG data products provider’s operations or identifying, managing, and mitigating the activities that may lead to those compromises.
- making high levels of public disclosure and transparency an objective in their ESG ratings and data products, including their methodologies and processes.
- maintaining, in confidence, all non-public information communicated to them by any company, or its agents, related to their ESG ratings and data products, in a manner appropriate in the circumstances.
- improving information gathering processes with entities covered by their products in a manner that is efficient and leads to more effective outcomes for both the providers and these entities.
- responding to and addressing issues flagged by entities covered by their ESG ratings and data products while maintaining the objectivity of these products.
The consultation also proposes entities subject to assessment by ESG ratings and data products providers could consider streamlining their disclosure processes for sustainability-related information to the extent possible, keeping in mind regulatory and other legal requirements in their jurisdictions. Finally, the recommendation for users of ESG ratings and data products is to consider conducting due diligence on the ESG ratings and data products that they use in their internal processes. This due diligence could include an understanding of what is being rated or assessed by the product, how it is being rated or assessed, and the limitations and the purposes for which the product is being used.
Comment Due Date: September 06, 2021
Keywords: International, Banking, Securities, ESG, ESG Ratings, Data Providers, Sustainable Finance, Disclosures, IOSCO
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