• Gustavo Bernal Torres

Regulators To Unlock 'Black Box' Of ESG Corporate Ratings

ESG raters and data providers are largely unregulated, lack transparency in their methods, offer uneven coverage and harbour potential conflicts of interest, said the International Organization of Securities Commissions (IOSCO), which groups market regulators from the United States, Europe and Asia.

  • Asset managers running ESG focused funds increasingly rely on about 160 raters globally to help pick stocks and bonds, raising investor protection questions, IOSCO said. Users, however, generally do not conduct any formal verification of the ratings, calling the process a "black box".

  • IOSCO's consultation paper recommends that regulators consider formally regulating the sector, echoing similar moves with credit rating agencies (CRAs) in the aftermath of the global financial crisis over a decade ago when similar concerns were aired.

Sources: https://www.reuters.com/business/sustainable-business/regulators-unlock-black-box-esg-corporate-ratings-2021-07-26/ & https://www.iosco.org/library/pubdocs/pdf/IOSCOPD681.pdf

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