Regulatory frameworks may consider transparency, integrity and accountability across market service providers, while avoiding unnecessary regulatory burdens.
As institutional investors have become the principal owners of listed equities in many markets, the service providers that support their voting, engagement and investment decisions have acquired increasing influence over corporate governance outcomes. Proxy advisors, ESG rating and data providers, and index providers do not themselves owe fiduciary duties to end-investors in the same way as asset owners and asset managers. Nevertheless, the quality and objectivity of their services can materially shape stewardship practices, capital allocation and, ultimately, efficiency in capital markets.
Across all three categories of service providers, the report identifies a common policy challenge: regulatory frameworks need to support informed use of these services without displacing the judgement of institutional investors or imposing unnecessarily rigid requirements that may hinder innovation and reinforce market concentration. Effective approaches are therefore likely to combine proportionate oversight with clear expectations regarding conflicts of interest, methodological transparency, quality assurance and processes for correcting material errors.
The regulation of proxy advisors may need to ensure that voting advice is transparent, independent and appropriately contextualised.
Proxy advisors illustrate both the importance of market service providers and the limitations of current regulatory frameworks. The influence of proxy advisors over shareholder voting has grown significantly, but regulatory oversight remains uneven across jurisdictions. Sixty per cent of jurisdictions have established legal or regulatory frameworks governing proxy advisors, while a further 10% rely on voluntary codes. In most cases, the emphasis is on disclosure rather than authorisation, and only four jurisdictions require proxy advisors to be licensed or registered.
Approximately two-thirds of jurisdictions require or recommend disclosure of voting policies or benchmark methodologies, thereby supporting transparency in how voting recommendations are developed. However, regulatory frameworks are much less developed when it comes to whether voting advice should adequately reflect national legal frameworks, local market practice or company-specific circumstances. Only 8% of jurisdictions explicitly require or recommend proxy advisors to take such context into account.
More effective proxy advisor oversight could require greater attention to conflicts of interest, staff competence and mechanisms that improve factual accuracy.
Conflicts of interest remain an important weakness in proxy advisor oversight. Two-thirds of jurisdictions have laws, regulations or codes requiring or recommending disclosure of actual or potential conflicts of interest. However, only 8% explicitly require or recommend disclosure where proxy advisors provide consulting or other paid services to the same companies on which they also issue voting advice. This is a significant gap. A credible regulatory framework would not necessarily prohibit such business models, but it should require robust internal safeguards and timely disclosure of the measures taken to avoid, mitigate or manage conflicts.
The report also finds that oversight of the human capital underpinning proxy advice is strikingly limited. In 90% of jurisdictions, there are no recommendations or requirements addressing the competence, ethics or independence of the staff responsible for producing voting recommendations. In addition, 94% of jurisdictions impose no requirements, or make no recommendations, regarding engagement between proxy advisors and issuers prior to the issuance of voting advice. This matters because confidence in stewardship-related services depends not only on disclosed methodologies, but also on whether providers have the expertise, review procedures and technological resources necessary to apply them in a consistent and reliable manner.
For ESG ratings and data, the policy priority may be to improve transparency and governance, while preserving scope for innovation.
Approximately two-thirds of jurisdictions have introduced formal requirements or recommendations for ESG rating providers, with almost one-tenth relying on voluntary codes. ESG data providers, however, are often excluded from scope or subject to lighter oversight, despite their growing role in supplying the raw inputs on which ratings, rankings and investment screens depend. Most existing frameworks require disclosure of methodologies and periodic reviews, yet independent verification remains exceptionally rare. Significant divergence in metrics, data sources and weighting methodologies continues to produce markedly different ESG assessments for the same issuer.
From a policy perspective, these findings suggest that the priority may be to improve transparency around how ESG assessments are produced, rather than to impose convergence around a single methodology. Investors should be able to understand whether key inputs are issuer-reported, obtained from third parties, estimated in the absence of reported data, or derived from broader assumptions. Greater transparency regarding data sources, methodological choices, assumptions and update cycles would allow institutional investors to make more informed judgements about the fitness for purpose of different products. At the same time, policymakers should avoid excessively prescriptive requirements that may reduce useful diversity in approaches or further entrench incumbent providers.
Almost one-third of jurisdictions have no explicit requirements or recommendations addressing the competence, experience, ethics or independence of staff developing ESG ratings. Two-thirds require or recommend disclosure of actual or potential conflicts of interest, but only 54% set expectations regarding the disclosure of ownership structures. Formal supervision also remains limited: only the European Union and India require registration, while most jurisdictions rely on voluntary codes or public lists.
The regulation of index providers shows the value of proportionality: stronger requirements can be directed at the most influential providers and products without imposing the same burden across the entire market.
Index providers present a somewhat different picture. Their regulatory frameworks are more developed than those for proxy advisors or ESG rating providers but often apply only to benchmarks that are considered significant or systemically important. Seventy per cent of jurisdictions have established regulatory frameworks for index providers, frequently using this proportional approach. Methodology transparency is the central regulatory concern: 70% of jurisdictions require disclosure of index methodologies, and 64% require consultation procedures, explanation of rationale and user notification when material changes are made. The same proportion requires periodic methodology reviews, often involving some form of independent assessment.
Governance and conflicts of interest are also addressed in a majority of jurisdictions. Two-thirds require disclosure of actual or potential conflicts and policies to prevent commercial interests from undermining benchmark integrity. By contrast, ownership transparency remains rare, with 96% of jurisdictions imposing no such requirement. Registration or authorisation requirements apply in 64% of jurisdictions.