Providers of environment, social and governance (ESG) ratings on companies will be asked to apply a voluntary best practice code as a first step to regulating the sector, Britain’s Financial Conduct Authority said on Tuesday (22/11/22).

Trillions of dollars have flowed into sustainable investments globally using unregulated ESG ratings on companies as a guide for their ‘green’ credentials, leaving regulators worried about greenwashing or over inflated ESG claims.

Britain’s government is considering giving the FCA powers to directly regulate ESG ratings providers.

In the meantime, the FCA said it wants the sector to develop and follow a voluntary code of conduct to increase transparency, ensure good governance and that conflicts of interest are properly managed with sufficiently robust systems and controls.

The code will reflect recommendations from the global securities regulatory body IOSCO, and developments in Japan and the European Union, the FCA said.

“A Code could also continue to apply for ESG data and ratings providers that fall outside the scope of potential future regulation,” the FCA said in a statement.

Source: Reuters