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Iosco’s Martin Moloney on auditing ESG data

By Victor Smart

The global standard setter for the securities sector is looking at sustainable finance and, despite financial markets’ general efforts, sees plenty of room for improvement.

The International Organization of Securities Commissions brings together securities regulators from around the world and is recognised as a global standards setter. It has also begun to look at the implications of environmental, social and governance (ESG) factors for financial markets. Secretary general Martin Moloney talks to Sustainable Views about the need for the professionalisation of sustainable finance, and how “everything depends upon the quality of issuer information”.

Q: What is the state of ESG investment?

A: We’re at a turning point. We’ve gone through, if I can generalise, a decade – and even longer for some people – of voluntary advocacy from civil society in relation to this issue becoming increasingly loud and forceful and persuasive. The UN intergovernmental panel on climate change, IPCC, has increasingly articulated the issues and it has had a huge impact on financial markets. But you reach a certain point at which you have to say, well, how do we get civil society pressure to influence asset managers and investors.

Q: How will it evolve?

A: Perhaps over the next decade, the role of voluntary alliances of asset managers and others will become less important and the role of traditional standard setters and traditional professional ethics bodies will become more important. I hope that is the case. Because for me, what is critical here is the establishment of the conditions in which you can have a professionalisation of this whole area of activity around sustainable finance, and you get the development of viable business models – whether it’s in terms of data analysis or the provision of really high quality asset management service. 

Q: How good are financial markets at dealing with ESG factors at the moment?

A: Professionalisation is something that we see as critical to moving on to the next step [whereby] financial markets are good at dealing with ESG. The fact is, at the moment they’re trying, but they’re not good and we need to get to the point where they are good. And that is where we come in.

Q: What basic principle underpins Iosco’s work on sustainability?

A: Given the complexity of all this, our approach has been to hold on to a few fundamental truths and to try to steer a path that is helpful to people. Our work in relation to sustainable finance is based upon a deceptively simple analysis: namely, everything depends upon the quality of issuer information. That is the base, you might say, of an inverted pyramid. We believe if we get good quality, well-assured issuer information out into the marketplace, it will be transformative for the whole sector. It will make it possible for data managers to create viable business models that can churn through data and information, check and question its quality and provide it to asset managers and to investors on a global basis, in a way that actually makes sense for investors who want to discriminate on the basis of the ESG criteria. 

Q: How will this work, and will there need to be an audit process on ESG ratings? 

A: We need to move forward with the ideas to get to a point where we can promote, encourage and facilitate the issuance of really reliable issuer information. And we would like to see that information not only issued in accordance with, or aligned with, international standards but also being subject to an assurance process – an audit process, if you like. This would create a level of satisfaction and confidence among issuers that it has been independently checked; that, to us, is absolutely fundamental. 

The interview has been edited for clarity and brevity.

 

A service from the Financial Times