The Financial Conduct Authority (FCA) has revealed it has completed a preliminary review on ESG benchmarks.
Back in September 2022, the organisation sent a portfolio letter to benchmark administrators where it highlighted the risk of poor disclosures for ESG benchmarks.
In its review, the FCA found that the overall quality of ESG-related disclosures made by benchmark administrators was poor.
The organisation revealed it has sent a further letter to administrators outlining the issues identified. These issues include not enough detail on ESG factors considered in benchmark methodologies as well as not ensuring that the underlying methodologies for ESG data and ratings products used in benchmarks are accessible, clearly presented and explained to users.
Other issues include not fully implementing ESG disclosure requirements as well as benchmark administrators failing to implement their ESG benchmarks’ methodologies correctly.
The FCA said, “We expect all benchmark administrators to have strategies to address the issues identified in this letter. We will be doing more work in this area to address the potential failings and expect firms to be able to explain these strategies on request. We will use the full range of our tools where this does not happen.
“We have previously said that we support regulation of ESG ratings. We are working closely with Government on this, who are expected to shortly consult on whether and how to extend the FCA’s perimeter to include ESG ratings providers. We also support and encourage the development of a voluntary Code of Conduct for ESG data and ratings providers.”
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