IA slams Treasury proposal to exclude raw data from ESG ratings regulation

investmentweek.co.uk:

The IA railed against the Treasury's view that the greatest risk of harm is from unregulated ESG ratings, and not data.

The government launched the consultation on ESG ratings providers at the end of March as part of its Green Finance Strategy. While the Treasury is overseeing the new legislation, it will be regulated by the FCA and the PRA.

Meanwhile, in a presentation at Investment Week's Sustainable Investment Festival earlier this month, the FCA's Mark Manning revealed the draft code of conduct for ESG data and ratings agencies is due for imminent release, Work on the code began last November as a «kick-start» for progress towards the Treasury's consultation.

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Responding to the Treasury's consultation, in which it proposed raw data providers would not be in scope of the new regulations but could adopt the voluntary Code of Conduct, the IA railed against the Treasury's view that the greatest risk of harm is from unregulated ESG ratings, and not data.

The IA added that while several types of ESG data may seem like raw data, they are entwined with value judgements and should therefore be in scope.

The IA cited the TCFD Feedback Statement in which the FCA concluded it sees a clear rationale for regulatory oversight of both ESG ratings and data providers when their products are used in financial markets.

The industry body also pointed out there is a divergence in processes used by data providers, necessitating transparency on their methodology to «ensure members are confident the metric being presented is based on facts and not opinions/specific views».

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