The Financial Conduct Authority says it is concerned about weaknesses in ESG benchmarks, telling administrators in a letter that disclosures are “poor.”

It has set out a range of improvements required.

Last year the FCA called for an extension of its powers to include regulatory oversight of ESG data and ratings providers in order to support greater transparency and trust in the market for these services.

In the letter, the regulator said there was not enough detail on the ESG factors considered in benchmark methodologies.

The FCA also said that administrators were not ensuring that the underlying methodologies for ESG data and ratings products used in benchmarks were accessible, clearly presented and explained easily to users. 

Other issues raised in the letter included criticism of benchmark administrators for not fully implementing ESG disclosure requirements.  

It also said benchmark administrators were failing to implement their ESG benchmarks’ methodologies correctly – for example, using outdated data and ratings or failing to apply ESG exclusion criteria. 

The FCA said: “We expect all benchmark administrators to have strategies to address the issues identified in this letter. We will be doing more work in this area to address the potential failings, and expect firms to be able to explain these strategies on request.

“We will use the full range of our tools where this does not happen.”

The FCA has previously expressed support for regulation of ESG ratings and said it is “working closely” with Government on this.

It said the Government is expected to shortly consult on whether and how to extend the FCA's perimeter to include ESG ratings providers.

It said it also supports and encourages the development of a voluntary Code of Conduct for ESG data and ratings providers.  

Last November the FCA formed a working group to develop a code of conduct for ESG data and ratings providers.