A global securities regulator plans to issue its first regulatory guidance for companies that rate corporate environmental, social, and governance (ESG) performance.
A global securities regulator plans to release its first regulatory guidance for assessors of corporate environmental, social, and governance (ESG) performance in July to curb the growing concerns of asset management companies about exaggerating green certificates.
As more and more investments are invested in climate-friendly funds, concerns about so-called “green drifting” have intensified, which has spawned an emerging market to evaluate how different companies respond to ESG challenges.
Ashley Alder, chairman of the IOSCO agency composed of securities regulators from the United States, Europe and Asia, said that many countries/regions do not have regulations for ESG rating agencies.
Alder said at City & Financial’s City Week event on Wednesday: “Many of both buyers and sellers have made it very clear that the diversity of different ESG rating options can be confusing, and again raises questions about relevance and reliability. And the serious problem of green bleaching.”.
“We are now working to ensure better transparency and clearer definitions. Our work may involve guidance to service providers and rating agencies, as well as advice on how regulators handle potential conflicts of interest.”
The International Securities Regulatory Commission IOSCO is expected to release a report in mid-July.
Regulators also hope that asset management companies will incorporate more meaningful climate-related considerations into their risk management, as the companies they invest in face stricter ESG disclosure rules.
“Providing high-quality information to the ultimate investor is crucial,” Alder said.
IOSCO is working with the International Financial Reporting Standards (IFRS) Foundation to establish a new agency by November to set mandatory global standards for companies to disclose climate change.
Alder said that IOSCO members such as the United States and the European Union will continue to formulate their own disclosure rules, resulting in some differences.
Therefore, it is crucial that these domestic methods must be fully interoperable with the global benchmarks that IFRS is developing to avoid conflicts and generate more “noise” in the system, Alder added.
“When the climate emergency does not respect national borders, we cannot simply work within the jurisdiction,” he said. “Global investors need global comparability.”