The issue being that ESG profiles of companies are assessed by ESG rating providers but there is no standard approach which, coupled with the lack of transparency, calls into question the reliability of ESG ratings and how well they reflect the company’s commitment to ESG. This is an ongoing risk for policyholders, their shareholders, potential investors and their FL insurers.
Our previous article can be found here.
The FCA has now announced that it is introducing regulatory oversight of certain ESG data and rating providers.
The FCA has also formed an industry led group to develop a voluntary code of conduct for ESG data and ratings providers. The aim being to help promote more rapid development of best practice on an international scale and to achieve consistent global standards. The FCA has appointed the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) as the Secretariat leading this work.
The independent group will meet at least four times a year and is aiming to meet for the first time this month.
This is welcome news for policyholders, their shareholders, potential investors and their FL insurers. Whilst (at least initially) it is anticipated the code will only be voluntary, it will be a clear indicator of how the FCA considers UK companies should work and conduct sustainable practices. It is a step towards transparency and consistency in the interpretation of ESG ratings of a company.
The rating providers themselves (and their FL insurers) will need to ensure they are now reviewing their own internal processes and corporate governance. They also need to review that they have adequate mechanisms in place to ensure they are giving full consideration to the information provided to them. More importantly, they are enabling the consistency and transparency that is being called for across industry sectors and globally.
We will continue to monitor developments and impacts of the regulatory supervision of rating providers as and when the Code of Conduct is finalised.
Related item: Environmental, social and corporate governance – transparency and consistency at last?
Read other items in Professions and Financial Lines Brief – December 2022
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