Skip to content

Navigating rapid policy developments – interview with FoSDA Policy & Regulations Working Group

Policy-makers and regulators around the world are seeking to develop enhanced oversight to govern environmental, social and governance ratings, scores and data products. FoSDA believes there are some core principles which should underpin any engagement, education and capacity-building initiative in and for the ESG data space. 

FoSDA established a new Policy & Regulations Working Group aimed at engaging on regulation and policies related to sustainable data practices globally.

PRWG Co-Chairs Ola Ajadi, Head of Government Relations & Regulatory Strategy, UK, Middle East and Africa at London Stock Exchange Group and Martina Macpherson, Head of Environmental, Social and Governance Product Strategy and Management at SIX, discussed the role of the working group, its ambitions and the trajectories for their vision and mission going forward.

Why was there a pressing need to establish this working group? What can you say about the policy and regulatory landscape in sustainable finance?

Martina Macpherson: The initial aim of the Policy & Regulatory Working Group (PRWG) at FoSDA was twofold. First, to create a work stream that would represent our members and to help them better understand the policy and regulatory landscape for sustainability. Second, to ensure the efforts of our working groups are aligned on issues of policy and regulatory focus and to leverage that work to inform the direction of travel for regulators and policy makers.

We have agreed that the PRWG will be able to come up with structures, ideas and concepts that will help other working groups to function. We’ve seen a paradigm shift from normative to regulatory, from voluntary to mandatory, from principles-based to rules-based approaches. The trajectory for the ESG market and the ESG regulatory landscape is ever evolving and remains very complex. Our working group has identified areas of focus and we are linking content, engagement and outreach initiatives to these. First, we will investigate the ESG data ratings and product landscape. Then we will look into disclosure regimes, and of course, labeling regimes, and align with a working group on taxonomies. Our joint decision to focus on ESG data and ratings transparency is a fundamental topic for our industry. We have just completed our strategic paper on this topic, which references the IOSCO report from 2021 and the upcoming FCA rules and ESMA regulation which can have a significant impact on our industry. As policy-makers and regulators seek to make progress on developing sustainable frameworks, we would strongly encourage them to base these regimes on the recommendations set out in IOSCO’s final report on “Environmental, Social and Governance (ESG) Rating and Data Products Providers”. Taking a principle-based approach based on IOSCO’s recommendations provides oversight and support for the key developments of this industry.

Can you share some of the key policy issues and activities that the working group plans to address in the coming year?

Ola Ajadi: A key area of focus is the ongoing work in different jurisdictions on ESG ratings and data products. We know IOSCO has looked at this, but there has been and continues to be activity – some regulatory, some through codes of conduct – in Japan, the EU, India and the UK to name a few markets. As authorities look to develop frameworks in this area, the PRWG is aiming to help educate them on this evolving market, setting out the heterogeneity of approaches and uses. We are also seeking to bring some degree of global alignment to approaches to ensure we don’t find ourselves with an overly fragmented marketplace. We are engaging with various authorities directly, as well as seeking to feed into the formal processes which they may have. Another area we are giving some thought to is disclosure frameworks. These are always going to be important. With the ISSB launching standards imminently, understanding how these disclosure standards can be adopted globally will be something we need to give some thought to. Finally, there may be some contribution we can make to the ongoing developments on labelling. Given the impact it has on many of our customers and the broader market, we need to give due consideration to whether we can add to the ongoing discussions. On all the topics we want to engage with, we will look to utilise a mix of direct meetings, roundtables and papers to help inform, guide, and where relevant, drive developments.

How does the working group balance the interests of different stakeholders when developing policy recommendations?

MM: Our discussions are led at board level and working group level by antitrust rules. The ambition is to bring together the collective of ESG data, ratings and product providers, to identify, assess and evaluate some of the most prevailing issues that our industry faces. Our collective aim is to build some consensus around key ESG policy issues that concern our industry, and to create multi stakeholder and interdisciplinary feedback loops. We aim to give all of our members regardless of size and market influence, a voice and a space to engage. We continue to gather, evaluate and share vital information with regulators, policy decision makers and the broader public. We aim to ensure that we have multiple rounds of discussions and that we carefully evaluate and incorporate members’ feedback, especially when and where corporate positioning, individual member’s considerations and collectively good governance are concerned. We have identified the core areas of focus, and we are now working on a blueprint for outreach and engagement planning, monitoring and reporting that can be utilised in other FoSDA working groups.

How do you aim to align your working group efforts with the other FoSDA work streams?

OA: FoSDA has working groups with real technical data expertise. The question for us is how best to direct that world-class expertise so that the output they develop is focused on the issues which are a priority in the regulatory and policy sphere. This will require a feedback loop. We need to be feeding back what we in the PRWG know of the policy and regulatory agenda and understand from colleagues in other working groups what sort of insightful information they can provide which will help inform that. We are cognizant of people’s time, so we want to make sure that whatever we are doing across FoSDA has real value in terms of progressing our agenda, ensuring we are feeding into what’s really going on rather than speaking into an echo chamber of what we think is happening. The FoSDA board also plays an important role in ensuring that the efforts of the working group and other work streams are aligned. Having Martina have a seat on the board is particularly useful in that context.

What role will research and data play in informing the policy positions?

OA: I think it needs to be at the heart of what we do. At our best, we need to be utilising the full potential of FoSDA – leveraging that data, information and insight and really pushing it forward. This is why it’s key that we have a close relationship with the other working groups. Data has to be at the heart of evidence-based policy-making, and FoSDA is in a position to provide that crucial data. If we fail to leverage that, in the long term, we’re going to have an ecosystem that is poorer for it, and this will ultimately have a negative effect on us, our customers and markets more broadly.

This interview was first published in the FoSDA 2023 Report, you can read it via this link.