Code of Conduct for ESG Ratings and Data Products Providers
The International Capital Market Association (ICMA) releases the Code of Conduct for ESG Ratings and Data Products Providers, aiming to standardize the supervision of ESG ratings and data products in different regions, and encourage suppliers to sign the code of conduct.
The Code of Conduct for ESG Ratings and Data Product Providers released this time is based on the consultation document released in July this year, which was issued by the ESG Data and Ratings Working Group (DRWG). DRWG was jointly established by ICMA and the International Regulatory Strategy Group (IRSG). Following a three-month consultation period, ICMA has obtained the ownership of final code of conduct.
Related Post: ESG Data and Ratings Working Group Releases Code of Conduct
Background on the Code of Conduct
The Code of Conduct for ESG Ratings and Data Products Providers aims to create an efficient, transparent, and trusting ESG products market by introducing clear standards for ESG ratings and data product providers and regulating their interactions with market participants. As a voluntary standard, ICMA hopes that it can improve the quality and availability of ESG products, strengthen the transparency of market information disclosure, improve comparability between products, and help establish a globally consistent regulatory framework.
According to the recommendations of the International Organization of Securities Commissions (IOSCO), the Code of Conduct mainly sets requirements for providers’ behavior in four aspects:
- Good governance: Providers need to have good governance arrangements in place that are consistent with the specific objectives of the Code of Conduct.
- Systems and controls: Providers need to have appropriate workflows in place to deliver high-quality ESG products.
- Conflict of interests: Providers should identify, mitigate, or avoid conflicts of interest in their work.
- Transparency: Providers should fully disclose the methods and processes of ESG products.
Contents of the Code of Conduct
The Code of Conduct for ESG Ratings and Data Products Providers includes six principles, namely:
- Principle on Good Governance: As the first principle, providers need to provide clear, transparent, and consistent responsibilities for those who determine, publish, and monitor ESG ratings and data products, so that they comply with the code of conduct and realize the conflict management.
- Principle on Securing Quality: Providers need to establish and maintain appropriate policies and procedures to provide high-quality products. For example, they can publicly disclose data sources, regularly review product methodologies, and continuously monitor and update ESG ratings and data products.
- Principle on Conflict of Interest: Providers need to implement internal arrangements that can avoid potential conflicts of interest and ensure the independence, integrity, and reliability of operations. For example, they can adopt written procedures to identify and manage conflicts of interest and disclose these measures, as well as avoid conflicts of interest in remuneration systems.
- Principle on Transparency: Providers need to improve the transparency of methods and processes, such as clearly describing ESG ratings and data products to customers, and where appropriate, describing the evaluation criteria, key performance indicators, evaluation scope, evaluation weights.
- Principle on Confidentiality: Providers need to manage and protect non-public information, such as formulating confidentiality agreement terms in their business with entities, and establishing, complying with, and maintaining processes related to non-public information in the business to ensure the reliability and reliability of the business.
- Principle on Engagement: Providers need to provide forward-looking assessments for cooperative entities and resolve the entities’ questions to obtain complete and accurate information and improve communication efficiency.
ICMA provides implementation deadlines for signatories of the ESG Ratings and Data Products Code of Conduct, starting from the signing date of six months for ESG rating providers and 12 months for ESG data product providers.
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