Britain to propose law next year to regulate ESG raters (updated)

Moodys

08/08/2024 12:21

(Adds industry reaction in paragraphs 7-8)
    By Huw Jones
       LONDON, Aug 8 (Reuters) - Britain said on Thursday it
would propose a law next year to regulate raters of company
environmental, social and governance (ESG) performance, whose
benchmarks help channel billions of dollars into
sustainability-focused investment funds.
    Currently in the UK, ESG raters are asked to comply with a
voluntary code of conduct, seen as a quick fix ahead of possible
mandatory rules already in place in the European Union.
    Finance Minister Rachel Reeves wants to cement Britain as a
world leader in sustainable finance, starting by addressing the
lack of transparency behind ESG ratings, the finance ministry
said in a statement on Thursday. 
    The previous Conservative government had opened a public
consultation on plans to regulate ratings providers, and
promised to regulate the sector.
    "Rachel Reeves has asked the Treasury to respond quickly to
an industry consultation on a new regulatory regime for ESG
rating providers and bring forward legislation next year," the
ministry said.
    "The new approach will boost growth, help deliver a cleaner
economy and ensure that companies in critical sectors like
defence are not penalised by opaque ratings," the ministry said.
    The UK Sustainable Investment and Finance Association
(UKSIF), an industry body, said regulation should help open a
"black box", as providers can sometimes come out with vastly
different ratings on the same company, causing confusion for
investors.
    Consultants Hymans Robertson said regulation of ratings
providers will be helpful if it improves transparency, but it
should not extend to those using the underlying ESG data for the
purposes of creating investment products.
    The ministry said the law would be aligned with
recommendations on ESG ratings from the International
Organisation for Securities Commissions (IOSCO).
        The European Union earlier this year approved a law to
regulate ESG ratings, aligned to the IOSCO recommendations.
    S&P Global  SPGI.N , Moody's  MCO.N , MSCI  MSCI.N , the
London Stock Exchange Group  LSEG.L  and Morningstar's  MORN.O 
Sustainalytics are among the biggest sellers of the ratings.
    Regulators have stepped up rule-making in the ESG area,
including mandatory disclosures by companies, to crack down on
greenwashing or green credentials being inflated to attract
investment.

 (Reporting by Huw Jones; editing by David Evans)
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))