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An ESG Ratings and Data Provision Code of Conduct is introduced by the UK

On 22 November 22, the British Financial Conduct Authority (FCA) announced the establishment of a working group dedicated to developing a code of conduct for ESG data and rating providers.

As investors increasingly integrate ESG considerations into the investment process, demand for ESG data, services, and ratings has surged. Yet, market and securities regulators rarely cover the activities and businesses of the providers.

The International Organization of Securities Commissions (IOSCO) previously urged regulators to improve transparency within the ESG ratings and data space and start applying regulatory oversight. IOSCO also provided several recommendations for regulators, including requirements for providers for the identification and disclosure of potential conflicts of interest, as well as the urge to consider the data and methodologies of providers.

Earlier this year, the FCA launched an ESG strategy, which included initiatives aimed at improving the trust of market participants in green and other ESG-labeled financial instruments. This strategy included services such as data, ratings, assurance, and verification provided by providers of ESG data. As a follow-up, the FCA expressed support for regulating ESG data and rating providers.

FCA is facilitating, supporting, and encouraging industry participants to create and follow a voluntary Code of Conduct as the government considers a regulatory role for ESG data and ratings.

The use of industry-led solutions will aid FCA's ESG Strategy in the development of best practices. To encourage the development of a consistent global approach, the Code will pay attention not only to IOSCO's recommendations but also to developments in other jurisdictions.

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