The Monetary Authority of Singapore (MAS), the central bank and financial regulator of Singapore, announced today the publication of its finalized Code of Conduct for ESG Rating and Data Product Providers (COC), introducing a set of principles aimed at boosting transparency, comparability and reliability of ESG ratings and data.
The code of conduct, and an accompanying checklist for ESG ratings and data providers to attest their COC compliance, are being rolled out on a voluntary basis, using a “comply or explain” approach for providers.
The new code of conduct comes as pressure builds to regulate providers of ESG ratings and data, with demand for the services surging as investors increasingly integrate ESG considerations into the investment process, while the activities and businesses of the providers are generally not covered by markets and securities regulators.
In November 2021, securities regulator standards setter IOSCO urged regulators to focus on improving transparency in the ESG ratings and data space, and to begin to apply regulatory oversight. IOSCO also provided a series of recommendations for regulators, such as requiring providers to identify and disclose potential conflicts of interest, and to consider the data and methodologies used by the providers. MAS said that its new COC builds on the IOSCO recommendations.
Key principles for providers outlined in the COC include the adoption of written policies and procedures ensuring that ratings and data products are based on a thorough analysis of all relevant information, and providing transparency around the methodologies and data sources used for the products, as well as policies to ensure independence and to identify, avoid, manage and disclose potential conflicts of interest.
Alongside the release, the regulator said that it was encouraging ESG ratings and data providers to disclose their adoption of the COC and publish the completed checklist within 12 months.
Lim Tuang Lee, Assistant Managing Director, Capital Markets, at MAS, said:
“The Code of Conduct will help build market confidence in the use of ESG rating and data products. Its baseline transparency standards for rating methodologies and data sources will improve the comparability of ratings and data products. The Code also encourages disclosures on how forward-looking elements are considered in such products, which will improve investors’ assessments of investee entities’ responses to transition risks and opportunities. Overall, the Code will support informed decision making by investors keen on funding the climate transition. We welcome adoption by ESG rating and data product providers as soon as they are ready.”
Click here to access the MAS Code of Conduct for ESG ratings and data providers.