MAS Proposes Code of Conduct for Providers of ESG Ratings and ESG Data Products
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The Monetary Authority of Singapore (MAS) launched a public consultation on an industry code of conduct for providers of ESG ratings and data products. This is part of a proposed approach centred on an industry code of conduct that was co-created by MAS with industry players.
The proposed code of conduct establishes minimum industry standards of transparency in methodologies and data sources, governance, and management of conflicts of interest. MAS will monitor the implementation of the industry code and observe global developments before taking further steps to formalise a regulatory framework for ESG rating providers.
ESG ratings help provide an assessment of the impact of ESG factors on an entity. ESG data products provide information on the various ESG factors, customised to specific needs. As the integration of sustainability-related risks and opportunities into capital allocation decisions become increasingly mainstream, the use of ESG ratings and data products for investing and capital allocation has grown.
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The industry is nascent and rapidly changing, and regulators globally are at various stages of developing regulatory approaches for these providers. The International Organization of Securities Commissions’ (IOSCO) Final Report on ESG Rating and Data Product Providers highlighted the lack of transparency of methodologies and data sources, governance and controls, as well as management of conflicts of interest as key areas of concern.
Co-created with ESG rating and data product providers, and modelled closely after IOSCO’s recommendations of good practices as set out in its “Call for Action” paper, the industry code of conduct would be a first step in establishing standards on the quality, reliability, and transparency of ESG ratings and data products in Singapore. Such an industry code is in line with our phased regulatory approach.
Mr Lim Tuang Lee, Assistant Managing Director (Capital Markets), MAS, said, “The industry code of conduct will help give greater confidence to financial market participants using ESG ratings and data products. The call for product providers to disclose how forward-looking elements such as an entity’s transition plans are considered in their products, is critical for more accurate market pricing signals related to climate risks and opportunities.”