The UK government has introduced new legislation that will bring ESG ratings providers under the supervision of the Financial Conduct Authority (FCA). This landmark move aims to improve transparency, consistency, and accountability across the fast-growing ESG ratings industry, which plays an increasingly important role in shaping global investment decisions.

Under the new rules, any firm that develops and distributes ESG ratings or scores that influence investment choices will be classified as carrying out a regulated activity. This applies not only to UK-based organizations but also to overseas providers offering ratings to UK investors. The goal is to ensure that all ESG ratings used within UK financial markets meet high standards of integrity and methodological rigor.

The FCA will begin consulting on specific rules for implementation, focusing on four main areas: transparency of methodologies, governance and internal controls, management of conflicts of interest, and the robustness of data systems. These measures are intended to bring ESG ratings into closer alignment with existing regulatory frameworks, such as those governing credit ratings and financial benchmarks.

This development reflects growing scrutiny of ESG data and methodologies worldwide. Investors and companies have long raised concerns about inconsistencies between different ESG ratings, as well as the lack of clarity around how environmental and social risks are assessed. By formalizing oversight, the UK aims to build greater confidence in ESG ratings, reducing the risk of greenwashing and improving their value in guiding sustainable investment strategies.

The new regime will be introduced in stages, with the core rules expected to take effect by mid-2028. However, ESG data providers are already being encouraged to evaluate whether their activities will fall within scope and begin adapting to more rigorous expectations.

In conclusion, this legislation marks a major step in the UK’s effort to strengthen its sustainable finance framework. It signals that ESG ratings, once seen as a niche, unregulated service, are now viewed as critical market infrastructure requiring the same level of oversight as other key financial tools.

Source:

https://esgnews.com/fca-to-regulate-esg-ratings-providers-under-new-uk-legislation/