The FCA has published proposals to ensure that environmental, social and governance (ESG) ratings are transparent, reliable and comparable.
The city regulator has stated that this is estimated to deliver around £500m in net benefits over the next decade.
The Financial Conduct Authority said: “ESG ratings inform investment decisions, risk management and regulatory reporting. Global spending on ESG data, including ratings, is projected to reach $2.2bn in 2025.”
These proposals follow the decision by the government to bring ESG ratings within the FCA’s remit, supported by 95% of those who responded to its consultation.
This will help “build the market’s trust in ESG ratings and address concerns”.
The FCA’s research shows around half of those who use ESG ratings are worried about how they are built (55%) and how transparent they are (48%).
The proposals aim to address this and focus on four areas:
- Increased transparency – allowing easier comparisons for the benefit of both those who use ratings and those who are rated.
- Improved governance, systems and controls – to ensure clear decision-making and strong oversight and quality assurance.
- Identification and management of conflicts of interest.
- Setting clear expectations for stakeholder engagement and complaints handling.
The proposed rules are designed to be proportionate to business size and risk.
The FCA added: “This will reinforce the UK’s reputation as a global sustainable finance hub, supporting innovation and continued growth. It will also support the government’s commitment to sustainable finance in its industrial strategy.”
The proposals draw on the existing voluntary industry code of conduct and International Organization of Securities Commissions (IOSCO) recommendations to support consistency and international competitiveness.
The FCA welcomes feedback on the proposals and the consultation is open until 31 March 2026.
Final rules are expected in Q4 2026, with the new regime coming into effect from June 2028. The FCA will provide support for those firms wishing to become authorised as an ESG rating provider.
FCA director of sustainable finance Sacha Sadan said: “Our proposals will give those who use ESG ratings greater trust and confidence – supporting our goal of increasing trust and transparency in sustainable finance.
“This will enhance the UK’s reputation as a global sustainable finance hub – attracting investment and supporting growth and innovation.”
St James’s Place head of responsible investment Andy Ford added: “This is a positive step. A lot has been made of how ESG ratings can differ between providers, but that’s often due to different methodologies being used.
“Taking those into account, the variations often make sense. Greater transparency will help users see what really drives a rating.
“The FCA’s push to strengthen governance, manage conflicts and improve complaint handling is also welcome. These are sensible measures that should raise standards across the board.
“However, we shouldn’t overstate the impact of bringing ratings agencies into the regulatory perimeter. In our view, investment managers shouldn’t be overly reliant on third-party ratings.
“We prefer our managers to use them as one input among many, comparing external assessments with their own in-house analysis rather than outsourcing judgement.”
