Future regulatory regime for ESG ratings providers: response to consultation

EXECUTIVE SUMMARY

We welcome this opportunity to respond to the proposed Future Regulatory Regime for ESG Ratings Providers. Our detailed response is contained within this document. Some sections are more detailed reflecting our expertise in some areas vis-a-vis others. We offer this executive summary as an overview of the main themes which emerge from this document.

1. The information in the consultation document does not yet demonstrate a keen appreciation of the complexities that corporate groups add to the challenges of effective ESG. More needs to be done to reassure that the interrelationships between and within groupings are understood sufficiently by the proposed regulations.
2. The UK is a geographically small region with a diverse economic character, ranging from the global firms listed on the LSE to the micro entities springing up round the various countries within the UK. There is a tendency to ignore this diversity within the consultation document.
3. Reporting structures (and proposed reporting structures) assume the kinds of system that are developed and adopted by large Multinational Firms. Whereas we recognise the need to capture their interest, in the spirit of innovation, we would argue that more needs to be done to recognise, foster and encourage the diverse types of providers within the UK (or those that will be within the scope of the final regulation). We would encourage the proposed regulations to recognise the validity of more informal methods towards reporting. Informal methods might produce richer narrative data, offering a more nuanced snapshot of ESG activities (and subsequent ratings) than reports that have been sanitised by a specialised corporate department.
4. The relationship between the UK and the EU on ESG issues needs to be considered, particularly as the UK have opted out of recent initiatives such as Directive 2022/2464. Building on (2), there is an urgent need to consider the border between Northern Ireland and the Republic of Ireland particularly with the Windsor Framework. The UK should at least recognise developments within the EU and to map UK requirements accordingly especially within the increasing relevance of the UK/Ireland border post Brexit.