MAS Publishes Code of Conduct for Providers of Environmental, Social, and Governance (“ESG”) Rating and Data Products

Following the launch of a public consultation on a voluntary „Code of Conduct (CoC)“ for ESG rating and data providers to implement a first set of business standards to adhere to in July this year (please see EventID 21931 in this context for more information), the Monetary Authority of Singapore, MAS, has published a corresponding consultation response. In it, MAS briefly summarizes the responses it has received to its consultation and presents the adjustments it has subsequently made to the Code of Conduct to reflect this feedback.
##### Background
To recall, in an effort to address the significance of ESG data in transitioning towards net-zero carbon emissions and to meet the needs of fund managers and ultimate investors seeking ESG data for their investments, MAS proposed a phased regulatory approach to regulate ESG rating and data providers. In a first step, MAS suggested to establish beforementioned CoC, on a voluntary basis. Once there’ll be greater international convergence as to the regulation of ESG rating and data providers, MAS will proceed with a local regulatory regime (and corresponding consultations). The proposed „Code of Conduct“, along with MAS‘ overall approach towards regulating such firms, was subject to the consultation in July.
The „Code of Conduct“ was thereby driven by seven key principles, including principles on the use and disclosure of appropriate ESG rating methodologies, the avoidance of conflicts of interest between the rating provider and the firm subject to a rating, the maintenance of true independence, the safeguarding of non-public information provided by the firm to be rated, and several others.
##### Responses and the way forward
In its response paper now, MAS notes that most respondents agreed with its staged approach towards regulating ESG data and rating providers. Similarly, most respondents agreed to the scope of the Code and in-scope service providers. However, there were also issues raised by respondents in this context. Notably, several respondents sought to further exclude providers that only provide such data for use within its own group or ESG-related material provided by proxy advisory firms from the ESG data definition. Clarifications were also sought in relation to entities „that do not produce, but solely compile and/or redistribute ESG ratings“ and in relation to „ESG score“ and its inclusion in the scope of the Code (score as being the actual result of a data analysis). Finally, respondents sought a more proportionate approach towards the disclosure requirements on changes to the methodologies for deriving ESG ratings and potential impact of such changes.
As a consequence to the noted feedback, MAS has made some revisions to the Code which are outlined throughout the response paper. It may be noteworthy that in the end, MAS will proceed with its proposed voluntary adoption of the CoC by ESG data and rating providers. MAS will also proceed with its „Comply or Explain“ approach, whereafter providers adopting the Code should explain compliance with the provisions within the Code or explain why they cannot comply with specific terms.
Furthermore, MAS will proceed with its proposal that providers complete and publish a „Self-Attestation Checklist“, which outlines how they adhere to the CoC. This checklist should, but doesn’t have to, be made available on their websites.
##### Further remarks in the accompanying press statement
In the concurrently published press statement, MAS encourages ESG data and rating service providers to disclose their adoption of the Code of Conduct and publish their completed checklist within 12 months from the publication of the CoC. Also, to facilitate transparency and enable stakeholders to easily identify providers that have publicly adopted the CoC, MAS has collaborated with the International Capital Market Association (ICMA) to arrange that ICMA will host a list of adopting providers on its website.