The Securities and Futures Commission (SFC) today announced that it supports and sponsors the development of a code of conduct for voluntary adoption by environmental, social and governance (ESG) ratings and data products providers providing products and services in Hong Kong. The Voluntary Code of Conduct (VCoC) will be developed via an industry-led working group, namely the Hong Kong ESG Ratings and Data Products Providers VCoC Working Group (VCWG).

The SFC also welcomes the International Capital Market Association (ICMA) (Note 1) to act as the Secretariat of the VCWG. The Secretariat will convene and lead the VCWG, which comprises representatives from local, Mainland and other international ESG ratings and data products providers as well as key users from the local financial industry.

The proposed VCoC will align with international best practices as recommended by the International Organization of Securities Commissions (IOSCO) (Note 2) and relevant expectations introduced in other major jurisdictions. The SFC, the Hong Kong Monetary Authority and the Insurance Authority will sit as observers to the VCWG. Further details are available in the terms of reference and participation list of the VCWG published by the ICMA.

“The Voluntary Code of Conduct will help strengthen the transparency, quality and reliability of ESG information used by licensed corporations in their investment decisions,” said Ms Julia Leung, the SFC's Chief Executive Officer. “This is an important initiative to mitigate the risk of greenwashing in investment products.”

The initiative is the culmination of the SFC's fact-finding exercise and industry outreach conducted since mid-2022 to understand matters related to the ESG ratings and data products providers, which are not regulated by the SFC. The exercise found that surveyed asset managers highlighted common concerns about data quality, transparency, and conflicts of interest management of the providers, and that the IOSCO recommendations should be encouraged for adoption by ESG ratings and data product providers. The key observations from the exercise and proposed way forward for these providers are summarised in a report published by the SFC today.

The proposed VCoC, which will be open for ESG ratings and data products providers to sign up voluntarily, is expected to provide a streamlined and consistent basis for asset managers to conduct due diligence or on-going assessment on ESG service providers.

End

Notes:

1.A self-regulatory organisation and trade association in the capital markets, the ICMA has been involved in various green and sustainable finance initiatives such as the Green Bond Principles and acts as one of the Secretariats of the ESG Data and Ratings Working Group in the United Kingdom in developing a voluntary code of conduct for ESG ratings and data products providers.

2.The recommendations are derived from the IOSCO final report titled Environmental, Social and Governance (ESG) Ratings and Data Products Providers dated November 2021. Subsequent to the report, IOSCO also published a document in November 2022 which calls on financial markets voluntary standard setting bodies and industry associations to promote the adoption and implementation of the good practices stemming from the IOSCO recommendations amongst their members.