SINGAPORE has published a code of conduct for environmental, social and governance (ESG) rating and data providers, as well as a checklist for providers to self-attest their compliance to the code.

The publication by the Monetary Authority of Singapore (MAS) on Wednesday (Dec 6) followed a public consultation conducted from June to August 2023.

The code is meant to establish baseline industry standards for transparency in methodologies and data sources, governance, and management of conflicts of interest that may compromise the reliability and independence of the products.

It defines an ESG rating provider and an ESG data provider, with no exclusion for second-party opinion providers which offer independent assessment of the accuracy and integrity of a sustainable finance instrument, programme or framework.

An ESG rating provider is an entity offering in or out of Singapore any ESG rating that relates to activities and institutions in the securities and derivatives industry. An entity solely compiling or redistributing ESG ratings produced, whether by related or unrelated parties, is not counted as one.

An ESG data provider is an entity providing any ESG data in Singapore to participants in the financial market or providing any ESG data out of Singapore to the securities and derivatives industry. There are certain exclusions for this as well.

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As the adoption of the code is on a voluntary basis, MAS said that second-party opinion providers can opt in if users of their products prefer that their providers adopt the code.

The code is to be applied on a “comply or explain” basis, that is, ESG rating and data providers will comply with the principles and best practices set out in the code, or explain why they do not adopt specific best practices.

While the providers should regularly review their methodologies and data sources, they are required to disclose changes to methodologies only where they are material.

Among the best practices is one on data-quality assurance asking that a provider verify its sources of data.

Meanwhile, MAS has proposed a phased approach towards regulating the ESG rating providers as capital markets services licensees under the Securities and Futures Act, while noting the requests for alignment and interoperability with other jurisdictions in developing a regulatory regime.

MAS encourages providers to disclose their adoption of the code of conduct and publish their completed checklist within 12 months from the publication of the code. A list of the providers will be published on the website of the International Capital Market Association.