© Reuters. Britain’s Chancellor of the Exchequer Jeremy Hunt leaves 11 Downing Street with the despatch box to present his spring budget to the parliament on March 6, 2024, in London, Britain. Carl Court/Pool via REUTERS
LONDON (Reuters) -Britain’s finance ministry said on Wednesday it will introduce regulation for providers of environmental, social and governance (ESG) ratings on companies to improve “clarity and trust” in benchmarks widely used to steer investments, but gave no specific timeline.
Trillions of dollars globally have flowed into company shares, with asset managers using ESG ratings to help pick stocks.
The activity of compiling ESG ratings, a sector that includes providers such as MSCI, S&P, Morningstar, London Stock Exchange Group (LON:) and others, is unregulated.
The ministry said it was issuing a “holding” statement following up on its public consultation last year, and since then a voluntary industry code of conduct has been introduced as a stop gap.
“A full consultation response and legislative steps will follow later this year,” the ministry said in a statement.
The European Union approved its first mandatory rules last month to regulate ESG ratings, going further than Britain’s voluntary industry code, though both sets of norms are based on guidance from IOSCO, a global securities regulatory body.
“The holding statement from government is somewhat disappointing given that the consultation closed last summer,” said Lorraine Johnston, head of ESG regulation at law firm Ashurst, adding that it left industry in a “waiting game”.
“What industry is really looking for is the clarification around what will constitute an ESG rating and who will be in scope as an ESG rating provider for such ESG ratings,” she said.
Consultants KPMG said raters expect rules that require them to formalise governance structures and publish methodologies to increase transparency and comparability of ratings.
Britain is facing a general election, expected later this year, which could impact the timing of legislation.
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