The Financial Conduct Authority (FCA) has created a focus group to develop a code of conduct for environment, social and governance (ESG) data and ratings providers.
The group will be co-chaired by M&G, Moody’s, the London Stock Exchange Group and Slaughter and May.
Members of the group which will include investors, ESG data and ratings providers, and rated entities, will meet for the first time later this year.
The FCA said as financial services firms integrate ESG into their activities and expand their ESG-focussed products, they are increasingly reliant on third party ESG data and ratings services.
The code is set to focus on a number of recommendations issued earlier this month by the International Organisation of Securities Commissions.
These are aimed at promoting “good practices” to tackle greenwashing risks relating to asset managers and ESG data and ratings providers.
“We will continue to work with our regulatory partners internationally, including through IOSCO in relation to their recently released call the action, to encourage a coordinated approach to the development of the code,” the FCA said,
The report also highlighted some of the good practices include using transparent and well-defined methodologies, quickly addressing potential conflicts of interest, making adequate public disclosures, and improving information-gathering processes.
In addition, the watchdog is prepared to go further and is committed to “a proportionate and effective regulatory regime”, but it requires permission from the Treasury to introduce additional legislation.
The FCA does not currently regulate ESG data and ratings providers, though it has previously supported the extension of its powers, stating regulatory oversight of these areas would support “greater transparency and trust” in the market.
The FCA said it welcomes the appointment of the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) as the secretariat leading this work.
This secretariat offers an in-depth understanding of both the UK and global financial markets and will ensure an unbiased and balanced representation of all key stakeholder groups, the FCA noted.
It added industry-led solutions will help support the aims of the FCA’s ESG strategy by helping to promote more rapid development of best practice.
The secretariat will convene an independent group to develop the code. Consistent with their respective objectives, the FCA, the Bank of England and other relevant financial regulators and government departments will sit as active observers to this group.
