I'm addicted, like most business people I am sure, these days to seeing how the market is reacting to the non-stop push of regulation and legislation on sustainability matters. After being impressed by the EU's Corporate Sustainability Reporting Directive (CSRD) announcement this summer, it wasn't surprising to see their proposals to regulate the ESG ratings industry.
However, MSCI and the London Stock Exchange Group (leading ESG rating providers) rejected the move to regulate the sector proposed by the European Union. In their response to an EU consultation, they agreed there was a need for EU-level intervention but felt a code of conduct would work better.
It's natural to try and regulate this mind field I would argue, just like its been necessary to drive legislation globally around reporting requirements. Today we see a variety of ways that ESG data is being reported and this is not helping companies navigate the right path to consistent data gathering and end reporting. The consultation stated that 90% agreed the main element to be addressed should be improving transparency on ESG methodology.
Data, and data collection and management, is the key to successful ESG disclosures. Knowing where to get guidance and how to assess performance currently comes with a number of options.
In my role I never see a day go by where I am not discussing with our clients the best way to tackle their ESG commitments and reporting needs. And this has changed from even one year ago. The pressure is here, it is real and it is challenging - so now is the time to be consistent to drive the change we need to make our world ever more sustainable.
Responding as to why it did not deem regulatory intervention necessary, MSCI said the nascency of the market and the rapid development of services to support the understanding of ESG risks and opportunities means an “industry-supported code of conduct” was more suitable.