ESMA’s Code of Conduct (CoC) for ESG Ratings Providers

ESMA’s Code of Conduct (CoC) for ESG Ratings Providers

On December 14, 2023, the International Capital Market Association (ICMA) launched a  Code of Conduct (CoC) for ESG ratings and data products providers. ICMA is an international non-profit organization with a focus on the development of capital markets and is a leader in Sustainable Finance, which devised the Green Bond Principles and Sustainability Bond Guidelines(SBG) among others. 


Contrary to the standardized nature of credit ratings, corporate Environmental, Social, and Governance (ESG) ratings exhibit considerable variability. This can be attributed to the distinct methodologies employed by various ratings providers. Consequently, corporations and users of ESG ratings face challenges in depending on these assessments. In one of our most read blogs, we presented an in-depth analysis of the consequences stemming from this divergence (read here).

Recognizing the need for more transparent and reliable ESG ratings, two separate initiatives were started. One was a mandatory regulation of ESG ratings providers in the European Union, and the other was the creation of voluntary guidelines for ESG ratings providers across the world. You can find our analysis of the mandatory EU regulations on ESG ratings providers here.While the mandatory regulation on the topic in Europe is driven by the European Commission and the European Parliament, the creation and implementation of the voluntary guidelines is driven by the International Organization of Securities Commissions (IOSCO), which is the global forum for securities regulators like the SEC. In November 2021, IOSCO released a report on ESG ratings and data products providers and in 2022. ICMA and the International Regulatory Strategy Group (IRSG) were appointed by the Financial Conduct Authority (FCA)  to lead the development of a globally consistent voluntary Code of Conduct for ESG ratings providers. On 5 July 2023, ICMA published an initial draft of the CoC which was followed by a 3-month consultation period. The final CoC was finally published on 14th December 2023.

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Key features of the CoC

The recommendations published by the International Organization of Securities Commissions on the ESG ratings providers in November 2021 forms the basis for the Code of Conduct, and it is designed for international interoperability and may be utilized in jurisdictions lacking a local code or regulation. 

Guided by IOSCO’s recommendations, the code prioritizes four key outcomes – promoting good governance, robust systems and controls, management of conflicts of interest,  and transparency. The details of each of the key outcomes are reproduced from the CoC document. 

  1. Good Governance: ESG ratings and data products providers are expected to ensure appropriate governance arrangements are in place that enable them to promote and uphold the principles and overall objectives of the code. 
  2. Systems and Controls: ESG ratings and data products providers are expected to adopt and implement written policies and procedures designed to help ensure the issuance of high-quality ESG ratings and data products. 
  3. Management of Conflicts of Interest: ESG ratings and data products providers are expected to identify, avoid or appropriately manage, mitigate and disclose actual or potential conflicts of interest that may compromise the independence and objectivity of ESG ratings and data products providers’ operations. 
  4. Transparency: ESG ratings and data products providers are expected to make adequate levels of public disclosure and transparency a priority for their ESG ratings and data products. This includes their methodologies and processes to enable users to understand the product and any associated potential conflicts of interest, while maintaining a balance with respect to proprietary or confidential information, data and methodologies.

For each of the four principles mentioned above, the CoC provides guidelines on the actions to be carried out to achieve the targeted outcomes. 

The CoC also excludes the following entities from its ambit: 

  1. credit rating agencies in respect of their offering of credit ratings (including ESG factors and scores that are part of credit rating methodologies). 
  2. entities who produce ESG ratings/scores or ESG data products that are used or consumed only within the same corporate group of affiliated companies and are therefore not provided or marketed to third parties; and 
  3. entities whose commercial activities involve ESG consulting services, but that do not involve the provision of any ESG ratings/scores or ESG data products. 

The Code of Conduct can be downloaded from the ICMA website here


The release of the Code of Conduct for ESG Ratings providers is a significant milestone in the journey towards reducing the wide divergence in the ESG ratings published by various ESG ratings agencies. The CoC will go a long way in improving the transparency of ESG ratings, and, along with the EU ESG Ratings Regulations, is anticipated to significantly enhance market participants’ confidence in ESG ratings, both within and outside Europe.

About NordESG

NordESG is an advisory firm helping corporates develop, articulate and execute their ESG and sustainability strategies. Our work includes sustainability performance reporting support under various ESG frameworks, strategy development or conducting materiality assessments. By doing so, we help businesses meet their disclosure compliance requirements like CSRD but also help them proactively communicate their strategy to other stakeholders like investors, customers and local communities in which they operate. Our work is focused mainly on Europe and North America.

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