Last year, we wrote about Hong Kong’s plans to adopt a voluntary code of conduct for ESG raters and data providers. Hong Kong’s Securities and Futures Commission (SFC) appointed the International Capital Market Association (ICMA) to develop the code of conduct, and the ICMA conducted a public consultation in May 2024. The code has been officially published as Hong Kong joins Japan and Singapore as the latest jurisdiction to adopt a voluntary code. Linklaters writes about the development stating:
“In line with recommendations by the International Organization of Securities Commissions (IOSCO), the principle-based approach adopted by the Code focuses on promoting transparency, good governance, management of conflicts of interest, and strengthening systems and controls in the sector. The Code includes a self-attestation document for ESG ratings and data products providers (the Providers) to explain their approach and actions taken to adhere to the principles of the Code. Providers are encouraged to sign up to the Code and implement the relevant self-attestation measures. The Code is available in English and Chinese.”
The code of conduct is strictly voluntary for the time being and will hopefully introduce market pressure for ratings firms to adopt and comply with its provisions. However, Japan (which has also adopted a voluntary code for ESG raters) has been disappointed with the results thus far, implying that voluntary codes may become mandatory if regulators remain dissatisfied. The UK is another jurisdiction where a voluntary code was adopted but is in the process of replacing it with mandatory regulations. The EU and India formally adopted ESG ratings regulations this summer and India saw a number of raters leave its markets as a result. Amid all this rulemaking one thing is clear, there is growing pressure for ESG raters to adopt better practices, and markets and regulators are moving to ensure that ratings firms evolve.
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