On September 3, the IIF submitted a response to the IOSCO consultation report on ESG ratings and data products providers. The response was informed by feedback from members of the IIF Special Committee on Effective Regulation (SCER) and the IIF Sustainable Finance Working Group (SFWG).

The response letter welcomed IOSCO’s early action on this topic given the increasing importance of ESG ratings and data products to the market, including to financial firms which use them as inputs to risk management activities, capital allocation decisions, product development, voluntary and mandatory reporting and disclosures. The letter discussed that, from a User perspective, financial firms recognize a number of the current challenges that IOSCO raises in the consultation (e.g. related to clarity and transparency).

In addition to providing specific feedback on IOSCO’s proposed Recommendations, the letter advocated for the following five next steps by IOSCO and its members:

1. Develop a clear classification framework for ESG ratings and data products, and associated use cases, recognizing that there are a variety of use cases for ESG ratings and data, each of which may merit different policy considerations and approaches; 
2. Facilitate the market-led development of industry standards and codes of conduct for the market for ESG ratings and data products; 
3. Provide high-level guidance on how regulators could practically take initial steps in this area, including on minimum safeguards for quality and transparency; 
4. Foster alignment in jurisdictional approaches to ESG ratings and data products to reduce the risk of jurisdictional fragmentation; and 
5. Engage proactively with relevant prudential authorities and policymakers to ensure that the use of ESG ratings and data is not directly or indirectly required in regulatory or supervisory frameworks (e.g., for disclosure, risk management, product construction, or scenario analysis) without a strong understanding of the intended uses and limitations of those products.