As in Japan and the UK, the code will be adopted on a voluntary and “comply or explain” basis, in contrast with the EU regime, which is mandatory and applies to ESG ratings only.
Japan finalised its code of conduct – the first regulatory initiative to establish minimum standards across the market – in December last year. It was adopted by major ESG data providers in July, the same month the UK set out its draft code. The British Treasury is separately working on a more formal regulatory regime.
Codes of conduct for the ESG ratings and data sector have also been tabled in Hong Kong, India and Taiwan.
As with the other codes introduced to date, Singapore’s builds on recommendations from the International Organisation of Securities Commissions on good practice for ESG ratings and data providers.
The MAS has enhanced this by also requiring disclosures on how forward-looking elements, including strategic plans and targets, are factored into the ESG rating or data product.
In response to requests for more detail on these types of disclosures, the MAS has suggested looking at whether decarbonisation targets are aligned with 1.5C, whether the goals and methodology have been validated by a third party, and whether the targets cover Scope 1, 2 and 3 greenhouse gas emissions where material.
Singapore has also followed the lead of Japan’s FSA in stipulating that providers should ensure they have “sufficient personnel and technological capabilities” to produce high-quality products.
The MAS has created a checklist that providers can complete to indicate their adoption of each principle and the respective best practices. The regulator has asked providers to disclose their adoption of the code of conduct by publishing a checklist within the next 12 months.
Providers who “wish to better demonstrate their adoption” of the code can undergo third-party assurance or audit as a form of voluntary verification, the regulator added.
Respondents to the consultation advised the MAS to consider the progress of regulatory frameworks in other jurisdictions, such as the UK and EU, before formalising a regulatory regime for ESG rating providers.
They also called for the introduction of an equivalence recognition to reduce reporting duplication for international providers.