ESG – FCA publishes Dear CEO letter regarding ESG benchmarks review

On 20 March 2023, the FCA published a Dear CEO letter to benchmark administrators.

This followed its preliminary ESG benchmarks review, which assessed the quality of disclosures made by a sample of UK benchmark administrators. The review found that the quality of the disclosures was poor, and highlighted the following issues in particular:

• insufficient detail was provided on the ESG factors considered in benchmark methodologies;
• there was a lack of accessibly and clarity of the underlying methodologies for ESG data and ratings products used in benchmarks;
• there was a lack of full implementation of ESG disclosure requirements (as introduced by the UK Low Carbon Benchmarks Regulation);
• a failure to implement ESG benchmarks' methodologies; and
• a failure to apply ESG exclusion criteria.

Given the importance of ESG benchmarks, the FCA intends to do further work in this area to ensure that CEOs, senior leadership and boards comply with its relevant requirements. The FCA also reminded benchmark administrators that they are expected to have appropriate strategies to address the issues and risks identified in the review and that they should be prepared to explain these strategies if requested.