Hong Kong’s Securities and Futures Commission (SFC) and the International Capital Market Association (ICMA) have partnered on the development of an industry-led voluntary code of conduct for environment, social and governance (ESG) ratings and data products providers.
Under the partnership, SFC will provide support and sponsor ICMA, which has formed a working group to develop an ESG code of conduct.
Working group members, including Bloomberg, Fidelity International, Invesco and Morningstar Sustainalytics, will set out a baseline best practice governing the conduct of ESG service providers offering products and services in Hong Kong.
It is based on the International Organisation of Securities Commissions’ (IOSCO) recommendations, covering the four key elements of transparency, systems and controls, governance and the management of conflicts of interest.
The initiative is the culmination of a fact-finding and industry outreach exercise the HK SFC has conducted since mid-2022 to understand matters related to ESG ratings and data products providers.
Surveyed asset managers highlighted common concerns about data quality alongside many of IOSCO’s baseline best practice guidelines.
“The voluntary code of conduct will help strengthen the transparency, quality and reliability of ESG information used by licensed corporations in their investment decisions,” said Julia Leung, the SFC’s chief executive officer.
She added, “This is an important initiative to mitigate the risk of greenwashing in investment products.”
According to a survey report from the consultancy firm ERM, published in early 2023, there has been a substantial increase in the use of ESG ratings and data products by investors globally,
In Hong Kong, the number of SFC authorised ESG funds increased to 209 as of 30 September 2023, representing a more then tenfold increase from five years ago.
However, the ESG ratings industry is generally not subject to regulatory oversight.
Until recently, there was a lack of globally recognised baseline standards on how ESG service providers were expected to derive their products and services, and what relevant information should be disclosed to end users.
The aim is for the proposed voluntary code of conduct to fill the gap and provide a streamlined and consistent basis for asset managers to conduct due diligence on ESG service providers, with the HK SFC and Hong Kong Monetary Authority sitting as observers of the working groups progress.
© Markets Media Europe 2023
