FED to Revise Information Collection; Congress to Scrutinize ESG Firms
The Board of Governors of the Federal Reserve System (FED) is seeking comments, until January 03, 2023, on a proposal to revise and extend, for three years, the reporting, recordkeeping, and disclosure requirements associated with Regulation Q, which sets out the capital adequacy requirements for bank holding companies, U.S. intermediate holding companies, savings and loan holding companies, and state member banks. FED also approved the request of Columbia Banking System Inc to acquire Oregon-based Umpqua Holdings Corporation and thereby indirectly acquire its state nonmember bank, Umpqua Bank. Additionally, the U.S. Senator Pat Toomey, a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, published follow-up letters to 12 environmental, social, and governance (ESG) rating firms, calling on these firms to disclose information on their practices for calculating companies’ ESG scores.
The U.S. Senator Pat Toomey, on September 20, 2022, had written to 12 rating firms, seeking information about how they calculate the ESG scores of companies. To date, six of the twelve firms (Arabesque S-Ray, Carbon Disclosure Project, FactSet, ISS, RepRisk, and Sustainalytics) have either ignored the letters or have provided incomplete responses. Thus, this week, the Senator sent follow-up letters asking the firms to preserve all documents, communications, and other information—including electronic information and metadata—potentially responsive to the September request. These documents will be critical for members of Congress to continue investigating ESG rating firms’ scoring and data collection practices come January. The original letter had requested the following information:
- Any non-proprietary methodologies used to assign ESG ratings, including the specific E, S, and G factors measured and how those factors are weighed
- How the firms determine the scope of industry sectors, including whether they employ analysts with sector-specific expertise
- Reports intended to capture controversies faced by a company, such as pending litigation, negative press coverage, or shareholder resolutions
- Whether companies have an opportunity to submit clarifying comments to their ratings for the benefit of investors
- How the firms determine the credibility of the data sources used; how the firms approach ratings with respect to hot button political issues, including abortion and gun control; and how the firms deal with potential conflicts of interest, in cases where the firms also issue proxy vote recommendations or offer advisory services
The letter states that the need for this arose because the use of ESG factors in capital allocation has raised bipartisan concerns among Congress and regulators alike. Legitimate bipartisan concerns have also been raised regarding the veracity of third-party data, the opacity of rating methodologies, the processes by which rating firms engage with rated entities, and the management of conflicts of interest. ESG rating firms are known to play a key role in the sustainable finance industry by providing third-party data and ratings on companies to investors. Given the above concerns and increased bipartisan interest in conducting oversight of the ESG industry, it is crucial that firms provide the requested information, notes the follow-up letter.
Related Links
- Information Collection Proposal on Regulation Q
- Acquisition Approval to Columbia Banking System Inc
- Call for Information from ESG Rating Firms
Keywords: Americas, US, Banking, Regulation Q, Reporting, Disclosures, Regulatory Capital, Basel, ESG, ESG Ratings, ESG Scores, Credit Risk Mitigation, Third Party Data, ESG Data Product Providers, FED, US Senate
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
SBV Approves National Strategy for Banks, Issues Other UpdatesRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
