Unregulated, Messy ESG Ratings and Data Products Face Tighter Global Regulation After Glasgow Talks

REGULATORY UPDATE

By Mathew Carr

Aug. 11, 2021 (LONDON): Securities regulators around the world are seen clamping down on providers of environmental, social and governance data and those who issue ratings, according to a person familiar with the situation.

The International Organization of Securities Commissions will probably make recommendations late this year or early next after a consultation process through Sept. 6, see note 2.

Bad data, conflicts of interest, inconsistent application of scrutiny needs to be sorted out, according to the consultation document.

Hong Kong and Swedish regulators urge better reliability. UN climate envoys are meeting in November to agree a rule book for the Paris climate deal.

Five Problems

From the press release, see note 1: Ashley Alder, IOSCO Chair and Chief Executive Officer of the Securities and Futures Commission of Hong Kong, said: “The use of ESG rating and data products is on the rise but most jurisdictions do not have regulatory frameworks which explicitly cover the providers of these products. Users have signalled that having multiple ESG ratings and data products can cause confusion, raising serious questions about relevance, reliability and greenwashing. The recommendations made in this report are part of our efforts to address the challenges and risks faced by ESG ratings and data providers as well as by the users of these ratings and data products and the companies which are subject to them.”

Asia and the U.S. is lagging the EU on coverage:

See note 2

NOTE 1: https://www.iosco.org/news/pdf/IOSCONEWS613.pdf

2: 56-page consultation: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD681.pdf

3. IOSCO is the leading international policy forum for securities regulators and is recognized
as the global standard setter for securities regulation. The organization’s membership
regulates more than 95% of the world’s securities markets in some 130 jurisdictions, and it
continues to expand.
The IOSCO Board is the governing and standard-setting body of IOSCO and is made up of
34 securities regulators. Mr. Ashley Alder, the Chief Executive Officer of the Securities
and Futures Commission of Hong Kong, is the Chair of the IOSCO Board. The members
of the IOSCO Board are the securities regulatory authorities of Argentina, Australia,
Bahamas, Belgium, Brazil, China, Egypt, France, Germany, Hong Kong, India, Ireland,
Italy, Japan, Kenya, Korea, Malaysia, Mexico, Morocco, Nigeria, Ontario, Pakistan,
Portugal, Quebec, Russia, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, Turkey,
the United Kingdom and the United States of America (both the U.S. Commodity Futures
Trading Commission and U.S. Securities and Exchange Commission). The Chair of the
European Securities and Markets Authority and the Chair of IOSCO´s Affiliate Members
Consultative Committee are also observers.

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