Code of Conduct for ESG Ratings and Data Products Providers
The Hong Kong Securities and Futures Commission (HK SFC) officially releases Code of Conduct for ESG Ratings and Data Products Providers, aiming to create a trustworthy, efficient, and transparent ESG rating and data product market.
The Hong Kong Securities and Futures Commission and the International Capital Market Association (ICMA) released a draft Code of Conduct for ESG Ratings and Data Products Providers in May 2024, which referenced relevant recommendations from the International Organization of Securities Commissions (IOSCO).
Related Post: Hong Kong SFC Releases Draft Code of Conduct for ESG Ratings and Data Products Providers
Contents of Code of Conduct for ESG Ratings and Data Products Providers
The Code of Conduct for ESG Ratings and Data Products Providers consists of six principles, namely:
- Principle on Good Governance: Providers need to establish clear organizational structures, standardize ESG rating and data product personnel roles, in order to comply with the requirements of the code of conduct.
- Principle on Securing Quality: Providers are required to provide high-quality ESG ratings and data products, using clear, rigorous, and systematic measurement methods based on publicly disclosed data sources, to conduct comprehensive analysis of ESG ratings and data products, while continuously monitoring and updating relevant methods, and storing internal records.
- Principle on Conflicts of Interest: Providers need to identify, avoid, or properly handle substantive and potential conflicts of interest in their business. Providers can establish specific procedures to disclose measures to avoid and manage conflicts of interest, and implement reasonable information reporting and compensation structures to provide product fairness and credibility.
- Principle on Transparency: Providers need to ensure that their ESG rating and data product methods are transparent and help stakeholders understand. Providers need to describe the usage goals, criteria, performance, weights, periods, and significance of ratings and data, and provide market trust in ESG ratings and data products.
- Principle on Confidentiality: Providers need to properly manage and protect non-public information, establish written policies, procedures, and mechanisms to ensure that non-public information is directed towards ESG ratings and data products.
- Principle on Engagement: Providers need to establish policies and procedures related to data collection in order to enhance the efficiency of engagement. Providers need to provide contact information, handle related inquiries, and actively communicate with the information provider during the development of ESG ratings and data products to reduce the risk of incomplete and inaccurate information.
Implementation of Code of Conduct for ESG Ratings and Data Products Providers
The Hong Kong Securities and Futures Commission believes that Code of Conduct for ESG Ratings and Data Products Providers should comply with the provider’s own business and structure, and be implemented through voluntary signing. Providers can fill out a self-assessment document stating the actions they have taken based on the code of conduct, and conduct a review at least once a year. After providers submit self-assessment documents to the International Capital Market Association, they need to take action within the prescribed period. The implementation period for ESG rating providers is six months, and for ESG data product providers it is twelve months.
The Hong Kong Securities and Futures Commission has defined situations where compliance with Code of Conduct for ESG Ratings and Data Products Providers is not required, such as:
The provider is a rating company that provides rating services that do not include ESG.
- The ESG rating and data products provided by providers are only for internal use.
- Providers only provide ESG consulting services and do not offer ESG rating and data product services.
- The above three situations are not the focus of the code of conduct, but still require compliance with existing regulatory policies in Hong Kong.
Reference:
SFC Welcomes Voluntary Code of Conduct for ESG Ratings and Data Products Providers
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