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Findings from 2023 Society IRO Survey on ESG Data and Ratings

Recent survey of IRO members provides insight into their experiences with ESG data and ratings agencies.

The Policy Committee recently surveyed IRO members to better understand their experiences with ESG data and ratings agencies, and key findings include:

ESG Ratings:​

  • the vast majority – 90% - of IROs think the FCA should regulate ESG ratings agencies to improve their transparency, governance and conflicts of interest.
  • over 80% of IROs think ESG ratings should take into account sustainability impact in addition to risk exposure and risk management.

The survey also examined current levels of integration of ESG issues, and the impact of ESG issues and data on IROs and their internal and external engagement, and found that:

  • over a fifth of IROs have fully integrated ESG into their investment case, with 80% integrating it by at least a moderate amount.
  • nearly three quarters of IROs find it ‘difficult’ or ‘very difficult’ to collate ESG data internally, with only 4% finding it easy.

This research is very topical given the EU has this week published its proposal for regulating ESG ratings providers, as outlined in this Reuters overview, key points being:

  • to avoid potential conflicts of interest, providers would be required to cease providing consulting services to investors, the sale of credit ratings and the development of benchmarks among other things.
  • providers will need to be authorised and supervised by the European Securities and Markets Authority (ESMA), and breaching the new rules could land them with a fine of up to 10% of their annual net turnover.
  • the rules could force agencies to separate their businesses, although it is not immediately clear what changes companies would need to make to be regarded as operating independently.

These survey findings will also inform the Society's response to the HM Treasury Consultation on regulating ESG ratings agencies, which followed the FCA’s Dear CEO letter criticising ESG ratings and benchmark providers after an FCA review that found them “poor” in their transparency and methodology.

Members can access the full report here.

Non members can access the report here.

Published 14 June, 2023