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FoSDA publishes position paper on ESG ratings, scores and data products policy initiatives

October, 2023

The Future of Sustainable Data Alliance (FOSDA), a leading voice of the sustainable data ecosystem, announces the publication of its position paper, a definitive statement in response to policy initiatives aimed at establishing more robust oversight to govern what are broadly categorized as environmental, social and governance (ESG) ratings, scores, and data products.

The position paper represents the output of the FoSDA Policy & Regulations Working Group*, which aims to leverage FoSDA’s role as a key player in the regulatory and policy debate for the industry.

FoSDA supports the policy and regulatory work by international regulatory authorities for more transparency in the ESG data and ratings industry, however, the Alliance believes there are some core principles which should underpin any engagement, education and capacity-building initiative in and for the ESG data space. FoSDA strongly encourages policy-makers to base new frameworks on the recommendations set out in IOSCO’s final report on “Environmental, Social and Governance (ESG) Rating and Data Products Providers. FoSDA supports proportionate initiatives that seek to provide greater clarity on the market while protecting providers’ analytical independence and the market’s ability to innovate.

Key messages of the position paper:

  1. Ratings, scores and other data products should be differentiated.

  2. ESG ratings and scores differ in scope, focus, and measurement from credit ratings.

  3. Heterogeneity of ESG data products calls for a principle-based policy approach.

  4. The independence of ratings and scoring methodologies should be protected.

  5. The quality of inputs and outputs is key.

  6. Conflicts of interests should be adequately managed.

  7. It is essential to ensure the interoperability of ESG ratings regulatory initiatives.

*The short paper contains a subset of issues that FOSDA’s Policy and Regulatory Working Group agreed were worthy of mentioning. It does not contain an exhaustive list of all the issues considered material to working group members and should not be taken to indicate that every member of the working group agrees with all the issues in the paper. 

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About FoSDA:

The Future of Sustainable Data Alliance is the proactive voice of the sustainable data ecosystem, which aims to enable the power of financial markets to tackle global environmental and social challenges through comprehensive and high-quality data and products. FoSDA brings together the voices of global sustainable data and analytics, index, and ratings providers from large players to smaller innovators, as well as market-shaping NGOs. In 2023, FoSDA has established four distinct working groups that are dedicated to different areas of focus. These working groups are specifically centred around Data and Methods, Policy and Regulations, Taxonomies, and Biodiversity.