FCA throws weight behind ESG regulation
The UK’s top financial watchdog has thrown its weight behind the regulation of environmental, social and governance (ESG) ratings today, saying there is a “clear rationale” to bring them within its remit.
The Financial Conduct Authority (FCA) has been consulting with the sector over the status of ESG rating in the past months, and said today it backed proposals put forward by government to create a regulatory framework for ESG ratings and providers.
“We see a clear rationale for regulatory oversight of certain ESG data and rating providers – and for a globally consistent regulatory approach informed by the recommendations on ESG data and ratings developed by the International Organization of Securities Commission in 2021,” the FCA said today.
“We therefore support the Government’s consideration of bringing ESG data and rating providers within our regulatory perimeter.”
Respondents to a discussion paper put forward by the watchdog broadly backed measures that would manage conflicts of interest, enhance transparency and promote good governance,, while 39 of 44 respondents supported ESG data rating providers adopting a voluntary best practice code.
The FCA and Treasury will now be required to undertake a formal consultation before drawing up any regulation of the sector, but it indicated it would look to align itself with other jurisdictions internationally.
“Considering the global reach of these providers, we strongly support an internationally coordinated approach that has regard to International Organization of Securities Commission’s recommendations,” it said.
Scrutiny of ESG-labelled products has grown in the past year over fears of greenwashing and exploitation of products.
One of the pioneers of the ESG label Paul Clements-Hunt told City A.M. that ESG ghad become a marketing frenzy.
“Marketing sustainability, green and ESG – however an asset manager wished to package it – was an easy win for asset gathering over a couple of years or more,” he said.
“But increasingly managers will be held to account as policy-makers, prudential oversight institutions and regulators seek to end a Klondike gold rush for easy assets.”