Draft Code of Conduct for ESG Ratings and Data Products Providers
The Hong Kong Securities and Futures Commission (SFC) and the International Capital Market Association (ICMA) releases the draft code of conduct for ESG ratings and data products providers, aiming to develop voluntary code of conducts for ESG related parties.
The Hong Kong Securities and Futures Commission released a questionnaire survey in November last year to investigate ESG rating agencies, data providers and asset management companies using these products in Hong Kong, and planed to regulate ESG rating and data products providers. The draft released this time was written by the International Capital Market Association and is interoperable with relevant standards in major jurisdictions around the world.
Related Post: Hong Kong SFC Plans to Regulate ESG Ratings and Data Products
Background of Draft Code of Conduct for ESG Ratings and Data Products Providers
Since the release of the questionnaire survey last year, the Hong Kong Securities and Futures Commission has established the Hong Kong ESG ratings and data products providers Voluntary Code of Conduct Working Group (VCWG). Members of the VCWG include representatives of ESG rating and data products providers from Hong Kong, as well as regulatory agencies such as the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority, and International Capital Market Association is invited to serve as secretary.
The VCWG referred to the documents issued by the International Organization of Securities Commissions (IOSCO) and believed that the Code of Conduct for ESG Rating and Data Product Providers in Hong Kong does not need to include specific adjustments. Therefore, the content involved in the draft is basically consistent with the codes formulated by other jurisdictions. The VCWG believes that with the development of global sustainable information disclosure requirements, the code can improve the transparency of ESG ratings and data products and help investors obtain more high-quality ESG resources.
Contents of Draft Code of Conduct for ESG Ratings and Data Products Providers
The draft code of conduct for ESG Rating and data products providers contains six principles, which are:
- Principle on Good Governance: ESG rating and data product providers should ensure that they have good governance arrangements in place to comply with the principles set out in the draft code of conduct. For example, the provider needs to have a clear organizational structure and define the roles and responsibilities of personnel related to ESG ratings and data products.
- Principle on Securing Quality: ESG rating and data product providers should adopt and implement specific written policies and procedures to ensure the provision of high-quality ESG ratings and data products. For example, providers should continuously track and update ESG ratings and data products based on the scale and complexity of their business, regularly review ratings and data methods, and disclose possible changes and the impact of these changes.
- Principle on Conflicts of Interest: ESG rating and data product providers should adopt and implement specific written policies and procedures to ensure that their decisions are not interfered with by external factors and can handle actual or potential conflicts of interest in business activities. For example, providers need to identify, manage and disclose conflicts of interest and develop measures to avoid them. They can establish appropriate remuneration arrangements and reporting frameworks to ensure that the credibility and fairness of the business are not affected.
- Principle on Transparency: ESG rating and data product providers should fully and publicly disclose the methods and processes they use to enhance the market’s trust in the products while ensuring commercially sensitive data. For example, providers disclose to the market the intended use of ESG ratings and data products and key performance indicators.
- Principle on Confidentiality: ESG rating and data product providers should ensure that non-public information used in their business activities is effectively handled and protected. For example, providers can implement specific information confidentiality mechanisms to ensure that non-public information is only used to develop ESG ratings and data products.
- Principle on Engagement: ESG rating and data product providers should communicate with companies regularly and take appropriate improvement measures. For example, they should reserve sufficient preparation time for companies and update material information in a timely manner.
The Hong Kong Securities and Futures Commission plans to provide a one-month consultation period for the draft code of conduct, after which ESG rating and data product providers can voluntarily sign this code and enter the implementation stage. The Hong Kong Securities and Futures Commission plans to update the document in the next two to three years to reflect the latest development of ESG ratings and data products.
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