If you could bring into force any law, what would that law be and why?

If I could bring into force any law, I would create a regulatory framework to scrutinise ESG rating agencies and bring them under the Financial Conduct Authority’s (FCA) reach. 

ESG factors are gaining greater prominence in driving business strategy and sustainability-linked investments. According to a PwC report, 79% of investors consider ESG factors before investing. ESG ratings and the rating providers are critical in facilitating sustainability-linked investments. However, critics have argued that the metrics used by these rating agencies are ambiguous and unstandardised. This has led to increased scrutiny of ESG rating agencies. Additionally, inaccurate ratings could potentially impact an organisation’s creditworthiness. Given the lack of regulation in the sphere, it is unclear how these rating agencies could be held accountable for their actions. Thus, regulation in this sphere is a pertinent concern that needs to be addressed. 

In my opinion, since credit rating agencies are subjected to a comprehensive regulatory framework, ESG rating agencies should also be brought under regulatory scrutiny. Chancellor Jeremy Hunt outlined the possibility of considering the same among the 30 reforms to financial services regulation. A consultation paper also suggested how the FCA and the Treasury can create a standardised system for ESG rating providers. 

Moreover, a centralised registration system will enable authorities to keep track of all entities issuing ESG ratings. This will bind them to a common organisational and industry standard to mitigate conflict of interest, focus on transparency, good governance and robust control systems. It will ensure reliable measurement and methodology for rating, consistent disclosure of ESG data, and tight scrutiny of ESG data disclosures. The FCA can ensure a globally coherent approach to regulation in line with recommendations from global authorities like European Securities and Markets Authority. This will be crucial in developing market confidence and safeguarding investors’ interests.

Our thoughts

Positives

• I like that the first sentence very clearly answers the question, and that the language used (“bring into force any law”) reflects how the question is phrased.
• It’s great that the applicant establishes why the current state of affairs isn’t satisfactory and why the new law would be impactful – these points are key to explaining why the new law should be brought into force.
• The topic is interesting and topical.
• The criticisms are presented clearly, in layman’s terms.
• The answer brings in broader commercial knowledge (i.e. the mention of Jeremy Hunt’s proposals and the white paper), which gives the impression that the applicant has really read around the topic.

Potential points for improvement

• The first three sentences in paragraph 2 don’t really flow, and some of the other paragraphs also read - in places - as if they consist of several statements that don’t properly link together. Words like “therefore” can help to build the argument more coherently.