On August 8, Reeves directed her office to “respond promptly to an industry consultation regarding a new regulatory framework for ESG rating providers and to propose legislation next year,” according to a Treasury spokesperson.
Since becoming Chancellor, Reeves has aimed to “attract more investment and establish the UK as a global leader in sustainable finance,” the Treasury stated. Addressing the lack of transparency in ESG ratings is one of her top priorities.
The case for clarity
“I fully support the goal of increasing transparency,” said Paris Jordan, head of responsible investing at Charles Stanley.
Jordan also noted that some ESG rating agencies currently dominate the market for ESG decision-making without sufficient accountability.
“There’s a recognition that these rating agencies need clearer guidelines,” she added. “If you don’t clarify what factors are involved in the process, and the results differ from client expectations, it can lead to problems.”
RepRisk’s chief commercial officer, Alexandra Mihailescu Cichon, also called for more clarity, stating, “Transparency is essential.”
She pointed out that an estimated $33 trillion is invested in ESG funds, and the scores used to construct these portfolios are heavily reliant on ESG ratings.
Cichon, like many in the industry, urged the government to tackle the “lack of transparency and the black box methodology” currently in use, to ensure that investors can be confident the funds are achieving their intended impact.
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