ESG Ratings

Overview

ESG ratings mainly focus on ESG securities, ESG bonds and ESG funds. It can evaluate the ESG performance of entities and find investment opportunities with price mismatches. ESG ratings are often co-regulated with ESG data products.

ESG rating agencies include traditional rating agencies and some boutique ESG rating agencies. The common ESG rating activities include ESG rating, ESG ranking, ESG data, and ESG metric.

ESG Ratings Regulations

ESG ratings can provide guidance for companies to improve sustainable disclosure and help investors establish sustainable investment portfolios. Regulatory agencies in numerous jurisdictions around the world begin to establish rules for ESG rating companies and their products.

The current important ESG rating code of conduct is issued by the International Capital Market Association, which provides the market with a framework for establishing a transparent, efficient, and trustworthy ESG rating system through voluntary compliance.

Some regulators have issued relevant regulatory policies based on ICMA’s framework. For example, Hong Kong SFC and ICMA jointly developed the Hong Kong ESG Rating and Data Product Supplier Code of Conduct. It is expected that as ESG develops in the future, these voluntary conduct may gradually transform into legally effective regulations.

Sovereign ESG Ratings

Unlike traditional corporate and financial ESG ratings, sovereign ESG ratings are used to measure a country’s ESG rating, which in turn involves asset allocation. The evaluation system and indicators of sovereign ESG ratings differ significantly from traditional ESG ratings.

With the development of ESG, sovereign ESG ratings may become a part of sovereign ratings, playing a decisive role in the overall ESG rating in jurisdictions.