Regulatory Scenario for ESG Rating Providers

Introduction The regulatory landscape for sustainable finance is rapidly evolving to address investors’ growing concerns around transparency, reliability, and quality of ESG ratings. ESG Rating Providers (ERPs) are at the forefront of this shift, with their ratings influencing market transparency and affecting investment decisions. This blog gives an overview of what regional regulations are expecting of rating providers, with a particular focus on the EU and the UK and gives insight into how investors can expect the landscape of ESG ratings to shift as a result of these regulations. Overview of the ESG Ratings Landscape 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. In the EU, the European Securities and Markets Authority (ESMA) has introduced a ‎regulation to enhance transparency and integrity of ESG rating activities. ‎ 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. In India, the Securities and Exchange Board of India (SEBI) has introduced a framework for ERPs. Japan’s Financial Services Agency (FSA) has also issued a ‘Code of Conduct for ESG Evaluation and Data Providers’. 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’s geographical focus.