Global code of conduct debuts for ESG ratings

With regulators increasingly focused on greenwashing risks, industry trade group the International Capital Market Association (ICMA) launched a new voluntary code of conduct for ESG ratings and data providers.

The code, developed at the behest of the U.K.’s Financial Conduct Authority (FCA), aims to promote market transparency and bolster governance, controls and conflict of interest management.

It also follows the recommendations of the International Organization of Securities Commissions, with a view to enabling the code to be adopted internationally.

“Today’s launch marks an important step in further promoting internationally consistent standards across sustainable finance,” said Nicholas Pfaff, deputy CEO and head of sustainable finance with the ICMA, in a release.

“In the growing market for ESG ratings and data products, the code will be vital for increasing transparency and trust,” he said.

The FCA welcomed the launch of the code of conduct. “With its strong focus on international consistency, this industry-owned code will play a key role in increasing transparency and trust in the ESG data and ratings market,” said Sacha Sadan, director of ESG with the FCA, in a statement.

“We encourage all ESG data and ratings providers to engage with and sign up to the code,” Sadan added.

Separately, the European Securities and Markets Authority (ESMA) said it is delaying the implementation of its new guidance on the use of ESG and sustainability-related terms in fund names, amid ongoing regulatory reviews in the fund sector — particularly an examination of when fund names are considered to be unfair or misleading.

“ESMA has decided to postpone the adoption of the guidelines to ensure that the outcome of these reviews may be fully considered,” it said.

It’s now expected that the new guidance will be published in the second quarter of 2024 and would take effect three months after that.

Existing funds would have six months to comply with the new guidance once it formally takes effect, and new funds would be expected to comply immediately.