FCA requires improvements on ESG benchmarks

The FCA has published its letter to administrators outlining where improvements are needed in ESG benchmarks. The FCA had previously highlighted the risk of poor disclosures for ESG benchmarks within its September 2022 portfolio letter, as well as the importance of trust in the market for ESG products and the transition to a net zero economy. The FCA’s preliminary review of ESG benchmarks has revealed that the overall quality of ESG-related disclosures made by benchmark administrators was poor. The FCA expects benchmark administrators to have strategies to address the issues identified within the letter to administrators, including:

  • lack of detail on the ESG factors considered in benchmark methodologies;
  • not ensuring that underlying methodologies for ESG data and ratings products used in benchmarks are accessible, clearly presented and explained to users;
  • not fully implementing ESG disclosure requirements; and
  • benchmark administrators failing to implement their ESG benchmarks’ methodologies correctly.

The FCA reiterated its support for regulation of ESG ratings, and anticipated that Government may soon be consulting on whether and how to extend the FCA’s perimeter to include ESG ratings providers. The FCA also encouraged the development of a voluntary Code of Conduct for ESG data and ratings providers.

FIN. Team