[\/et_pb_text][et_pb_heading title=“ Overview of the ESG Ratings Landscape“ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h2″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_font_size=“18px“ global_colors_info=“{}“]<\/p>\n
ERPs, which play a critical role in shaping investment decisions and market transparency, are increasingly coming under regulatory purview. Globally, several jurisdictions are moving forward with regulations for ERPs. The International Organization of Securities Commissions (IOSCO) is a global association of securities regulators. Its recommendations on ESG ratings and data products serve as a foundational framework for various jurisdictions, including the EU and the UK, in developing their regulatory frameworks for ERPs.<\/p>\n
[\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ text_font_size=“18px“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture2.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n
In the EU, the European Securities and Markets Authority (ESMA) has introduced a \u200eregulation to enhance transparency and integrity of ESG rating activities. \u200e<\/p>\n
[\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture4.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n
Meanwhile, in the UK, the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) have introduced a Code of Conduct for ESG ratings or data products providers. <\/p>\n
[\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ text_font_size=“18px“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture4.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n
In India, the Securities and Exchange Board of India (SEBI) has introduced a framework for ERPs. <\/p>\n
[\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ text_font_size=“18px“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture2.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n
Japan’s Financial Services Agency (FSA) has also issued a ‚Code of Conduct for ESG Evaluation and Data Providers‘.<\/p>\n
[\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_font_size=“18px“ global_colors_info=“{}“]<\/p>\n
Various jurisdictions present slight variations in their regulatory requirements, all of which are equally important; however, the regulatory developments in the EU and the UK hold primary significance due to Inrate\u2019s geographical focus.<\/p>\n
Read more:\u00a0ESG Ratings for Public Companies<\/a><\/p>\n [\/et_pb_text][et_pb_heading title=“1 Regional Regulatory Developments \u2013 A Focus on the EU and the UK“ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h2″ global_colors_info=“{}“][\/et_pb_heading][et_pb_heading title=“1.1\tRegulatory frameworks in the EU and the UK“ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h3″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ text_font_size=“18px“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture6.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n \u200eEU: Transparency and Integrity of ESG Rating Activities [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ text_text_color=“#FFFFFF“ text_font_size=“18px“ background_image=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture7.png“ custom_padding=“2%|1%|2%|1%|false|false“ global_colors_info=“{}“]<\/p>\n \u200eUK: Code of Conduct for ESG Ratings and Data Products Providers \u200e\n<\/p>\n [\/et_pb_text][et_pb_heading title=“1.2\tFocus area of the regulations“ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h3″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n Although both the EU and the UK regulations are largely aligned, there are some differences in their scope, particularly regarding governance, applicability to data products, and other related areas. While these regulations directly target ERPs, they are designed to enhance the overall credibility and integrity of the ESG ratings market, ensuring that investors can rely on high-quality, transparent assessments. <\/p>\n [\/et_pb_text][et_pb_image src=“https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Picture1-1.png“ title_text=“Picture1″ _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“][\/et_pb_image][et_pb_heading title=“1.3\tDeep dive into the EU\u2019s regulation and how it impacts investors “ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h3″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n With the recent publishing of the EU\u2019s regulation on the transparency and integrity of ESG rating activities, it is important to deep dive into how the regulation is expected to change the ESG ratings landscape for investors:<\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 1) Transparent disclosure of rating methodologies:<\/b> Investors and companies will have access to clear information on how ratings are calculated including the assumptions used, data sources, and the weightage of E, S, and G factors. You can read more about Inrate\u2019s rating methodology here.<\/a><\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 2) Clearly defined assessment approach: <\/b> Investors will have a clear indication on whether the rating focuses on financial risks, societal impacts, or both (i.e., distinguish between ESG risk ratings<\/a>, ESG impact ratings, and ESG ratings that focus on double materiality).<\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 3) Increased confidence in conflict-of-interest management: <\/b> The regulation requires rating providers to separate rating activities from consulting, auditing, or credit rating services. This helps reduce investor concerns around conflicts of interest, impacting the reliability of the ratings. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 4) Supervision by ESMA: <\/b> The ESMA<\/a> will authorize, enforce, and monitor compliance and will impose penalties for non-adherence. This will help increase accountability among rating providers and improve reliability of ratings.<\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 5) Greenwashing prevention: <\/b> The regulation\u2019s focus on transparency across the board supports investors to avoid any misleading sustainability claims. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n 6) Trickle-down effect on data quality from ESG Data Providers: <\/b> The investors purchasing ESG data solutions<\/a> from rating providers can expect an improvement in the data transparency and quality of the data solutions that they are currently receiving.<\/p>\n Read more:\u00a0ESG Scores: What is it, And How Are They Calculated?<\/a><\/p>\n [\/et_pb_text][et_pb_heading title=“2 Inrate\u2019s Approach to Transparency, Accuracy, and Quality “ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h2″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n Inrate understands the implications of the new regulatory requirements for ERPs and is naturally positioned to be fully compliant. Our ratings have always been underpinned by a focus on transparency, recency, and quality, which aligns seamlessly with the expectations laid out by regional regulations. Some actions that underpin our preparedness include: <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n \u2022 Transparency:<\/b> Inrate currently offers separate aspect scores and grades. We have already published a preliminary outline of our methodology, available here, which is to update in line with the expectations of the regulations. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n \u2022 Conflict-of-Interest Management:<\/b> Inrate has procedures for employee independence and does not participate in any consulting, auditing, or credit rating services. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n \u2022 Quality:<\/b> Inrate has always assessed alignment with international agreements, and will continue to do so, as recommended by the EU\u2019s regulation. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n \u2022 Governance:<\/b> Inrate has clear governance structures in place and will be ensuring documentation aligns with the principles in the Code of Conduct. <\/p>\n [\/et_pb_text][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n As an active participant and member of the European Association of Sustainability Rating Agencies (EASRA), Inrate<\/a> gains insights into emerging regulations for ERPs in the European region and Swiss jurisdiction, while continuously monitoring updates to align its practices with evolving compliance requirements.<\/p>\n Read more:\u00a0Role of Climate Data in Assessing Portfolio Risk<\/a><\/p>\n [\/et_pb_text][et_pb_heading title=“Conclusion “ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h3″ global_colors_info=“{}“][\/et_pb_heading][et_pb_text _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n Global regulations aimed at increasing transparency, reliability, and quality of ESG Ratings<\/a> will enable investors to make more confident sustainable investment decisions. Such regulations are key to ensuring traceability and comparability in the market, enabling investors to choose ratings that best suit their purposes.<\/p>\n [\/et_pb_text][et_pb_heading title=“Contributors“ _builder_version=“4.27.4″ _module_preset=“default“ title_level=“h3″ global_colors_info=“{}“][\/et_pb_heading][et_pb_code _builder_version=“4.27.4″ _module_preset=“default“ global_colors_info=“{}“]<\/p>\n
\nESMA has taken the lead in regulating ERPs within the EU. It has introduced a regulatory framework \u200ethat aims to enhance the transparency, reliability, and comparability of ESG ratings. This framework \u200eincludes several key aspects, such as registration requirements, which mandate ERPs operating in the \u200eEU to register with ESMA and adhere to specific registration requirements. Additionally, providers are \u200erequired to disclose information related to key areas, including transparency, conflict of interest, \u200eprocesses & procedures, and quality. Furthermore, ESMA monitors the performance of ERPs and may \u200etake enforcement action when deemed necessary.\u200e
\n\u200e\n<\/p>\n
\nIn the UK, ICMA and IRSG outlined a voluntary Code of Conduct, comprising six \u200eprinciples, \u200eemphasizing good governance, quality, conflicts of interest, transparency, \u200econfidentiality, and \u200eengagement. Upon signing the Code of Conduct through ICMA, \u200eESG ratings and data providers are \u200erequired to implement their provisions. After \u200eimplementation, they must publish a \u2018Statement of \u200eApplication\u2019 on their website, \u200enotifying ICMA with the pertinent details. The Code is designed to be \u200eclosely aligned \u200ewith IOSCO\u2019s recommendations, aiming for international interoperability.\u200e\u200e<\/p>\n
![\"\"](\"https:\/\/inrate.com\/wp-content\/uploads\/2023\/03\/Group-147-7.png\")
<\/div>\n![\"Mridul](\"\/wp-content\/uploads\/2023\/03\/Mridul-Mitra.png\")
<\/div>\n