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IOSCO’s report on ESG ratings and data providers

  • United Kingdom
  • ESG
  • Financial services and markets regulation - ESG
  • ESG
  • Financial services


The International Organization of Securities Commissions (IOSCO) published a consultation report (the “Report”) to provide a better understanding of the implications of the environmental, social and governance (ESG) ratings and data products for financial market participants.

Globally, financial market participants rely heavy on ESG ratings and data products.  This raises concerns about the risks they pose to investor protection.  

IOSCO counts the world’s major financial regulators among its membership and its recommendations frequently trickle down into national policy.  The report will therefore be of particular interest to firms seeking to understand where national policy in this space is headed.

Market overview and IOSCO’s fact-finding analysis

There are only a small number of ESG ratings and data product providers with a global presence.  The market has consolidated as big firms have acquired smaller, specialised ESG providers.  However only a few big players have fully integrated the companies they have acquired into their businesses.  As a result, ESG data varies widely between providers as the acquired companies had specific regional presences and a specialisations in specific data sets, coverage and services.  

There is a lack of harmonisation in ESG ratings and data product names.  Objectives and methodological practices can vary significantly.  IOSCO found more coverage for publicly listed companies than private companies, which may reflect the reliance of providers on public disclosures for their analysis.

IOSCO identified providers catering to different segments, regions or needs in terms of focus and purpose which further leads to the inconsistency between ratings.  Demand for data products is higher in highly regulated jurisdictions.

Reliability of ESG data and methodology used

The Report found that providers heavily rely on data inputs to support their analysis.  IOSCO identified several issues with this approach:


Available ESG information varies by jurisdiction.  This can have adversely affect product quality and level of coverage


ESG data disclosures may be found in a variety of reports, including report and accounts, corporate reports and websites.  There is a risk providers may not locate and analyse all relevant information


Providers use different methodological approaches.  Data may be collected from a variety of sources, including publicly available information, questionnaires, and data produced or gathered by third party suppliers and this creates inconsistency when producing ratings

Data tools

While some providers make use of machine learning (ML) and artificial intelligence (AI) techniques, other are still assessing how AI and ML can be implemented in collecting data

Due diligence

Lack of due diligence from providers in response to discovery of inconsistencies


IOSCO wants regulators and providers to consider the following recommendations:

  1. regulators should focus more attention on ratings and data products and their providers;
  2. providers should use transparent and defined methodologies to analyse publicly disclosed data sources and other information in order to produce high quality ESG ratings and data products;
  3. providers should improve their due diligence processes to ensure that their decisions are free from political or economic pressures and from conflicts of interest.  Providers should avoid activities, procedures and relationships which may compromise their independence and objectivity;
  4. providers should be more transparent about their ratings, data products, methodologies and processes;
  5. providers should keep confidential information which is not publicly available;
  6. financial market participants should conduct due diligence on the ESG ratings and data products which they use for internal processes;
  7. providers should improve their information gathering processes so they are more efficient;
  8. to the extent compatible with maintaining their objectivity, providers should consider addressing issues flagged by entities they assess and rate;
  9. entities which are the subjects of ratings and data products should consider streamlining their disclosure processes.

What happens next

There is an expectation that providers should be encouraged to move towards common definitions and methodologies to make ESG ratings and data more consistent to the benefit of the providers, their subjects and investors.  Regulators are expected to ensure that assessments are transparent and fair.

In the UK, the Report is well timed in light of the FCA’s focus (as part of its 2021/2022 Business Plan) on “promoting integrity” in the sustainable investing market and in particular its concerns around greenwashing.  Although there are several challenges, in part due to the amount of data available and its subjectivity (many managers have their own rating systems), greater transparency and consistency can only be a good thing and will be welcomed by the industry.   

The Report’s recommendations were subject to a public consultation which closed on 6 September.

How Eversheds Sutherland can help

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