30 March 2023
If you are covering the launch of the HM Treasury consultation on ‘Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers’, please see the following comments from Gemma Woodward, head of responsible investment at Quilter Cheviot:
“Firms offering ratings on environmental, social and governance factors have grown rapidly in recent years, and the differences in the methodologies behind these ratings can be problematic. It is therefore a real positive to see the government taking a step forward in its assessment of whether to bring them into the regulatory regime with a consultation on what that might look like.
“At present, there is a growing dependency on data and metrics by these firms from asset managers and owners in order to meet regulatory reporting requirements such as TCFD, as well as using these within their responsible investment approaches, such as integrating ESG factors within the investment process. However, this is not yet a standardised process and if an investment manager uses one external data provider, often it will have inherent biases which will likely skew the outcome as the rating would be based solely on that provider’s data and does not take into account any other research.
“In recognition of this issue, we use multiple data providers combined with our own research teams to consider ESG factors within the investment process. While this should arguably be standard practice, it is not and that leaves a great deal of room for error.
“We are pleased the government has recognised that ESG ratings are increasingly influential, and that there is a real need for regulation to improve the currently lacking level of consistency.”
