The FCA has published proposals to ensure that environmental, social and governance (ESG) ratings are transparent, reliable and comparable – a move that is estimated to deliver around £500m in net benefits over the next decade.
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. Introducing clear, proportionate rules for transparency and governance will help to 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 4 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.
There are also proposals on applying existing FCA rules to firms coming into the FCA’s remit. The proposed rules are designed to be proportionate to business size and risk.
Strengthened market trust through proportionate oversight benefits business. 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.
Sacha Sadan, Director of Sustainable Finance at the FCA, 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.’
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 – 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.
Commenting on the FCA’s consultation on regulating ESG ratings providers, Carol Thomas, Head of Sustainability and Responsible Investment at the Investment Association, said: “A key requirement of forming sustainable and responsible investment strategies is access to high-quality sustainability-related data and ratings. ESG data and ratings providers therefore play an essential role in providing information and services that impact on investment decisions. As such, we welcome the consultation and hope to see a proportionate approach to regulating ESG ratings providers, one which does not impede the growth and evolution of sustainable and responsible investment.
“We look forward to working with our members and the FCA to ensure the new regulatory framework serves the needs of investors and the market as a whole and provides the flexibility for the asset management industry to continue to innovate and meet the demands of clients.”
Sophie Meatyard, Head of Fund Research at ESG, sustainability and impact data provider, MainStreet Partners comments on the FCAs proposals to make ESG ratings transparent, reliable and comparable:
“We welcome the UK’s decision to regulate ESG ratings providers under the Financial Conduct Authority from June 2028. This is a significant step toward improving transparency, consistency, and trust in the ESG ratings market, which plays a critical role in guiding sustainable investment decisions. We are confident in the robustness of our methodologies and governance frameworks, and we see this regulation as an opportunity to demonstrate our commitment to integrity and comparability.
“We also view the extended timeline positively. The phased approach allows the industry to prepare effectively, while aligning with international developments. In particular, the European Union’s ESG Ratings Regulation will come into force in July 2026, and we hope that the UK and EU regimes will converge on key principles such as transparency, governance, and conflict management. Such alignment would reduce complexity for global investors and foster a more coherent sustainable finance ecosystem.
“These initiatives raise the bar for accountability and help ensure ESG ratings remain a trusted tool for capital allocation and corporate strategy.”
Mike Zehetmayr, EY EMEIA Financial Services Risk, Compliance and Regulatory Technology Leader, comments: “Today’s FCA proposals support more transparent and reliable ESG ratings for financial services firms, and if implemented effectively, will reinforce the UK’s position as a global sustainable finance hub by unlocking capital for the transition.
“Robust ratings are critical to the credibility of markets, and to achieving the transition. In carbon markets today, inconsistent data and opaque scoring models create confusion and risk, slowing the flow of capital into projects that deliver real climate impact. Without trusted ratings, the £1.3 trillion annual climate investment science demands are at risk of stalling.
“Aligned to the four focus areas announced today by the regulator, a useful rating must be transparent, built on clear methodologies, and formed of readily accessible data. Ratings should be backed by strong governance, and be completely free from unmanaged conflicts-of-interest. If this is achieved, decision-makers in the industry will have better visibility over sustainability issues and are set up for a more successful transition.”
Andy Ford, Head of Responsible Investment at St. James’s Place, said: “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.”
Sophie Meatyard, Head of Fund Research at ESG, sustainability and impact data provider, MainStreet Partners comments on the FCAs proposals to make ESG ratings transparent, reliable and comparable:
“We welcome the UK’s decision to regulate ESG ratings providers under the Financial Conduct Authority from June 2028. This is a significant step toward improving transparency, consistency, and trust in the ESG ratings market, which plays a critical role in guiding sustainable investment decisions. We are confident in the robustness of our methodologies and governance frameworks, and we see this regulation as an opportunity to demonstrate our commitment to integrity and comparability.
“We also view the extended timeline positively. The phased approach allows the industry to prepare effectively, while aligning with international developments. In particular, the European Union’s ESG Ratings Regulation will come into force in July 2026, and we hope that the UK and EU regimes will converge on key principles such as transparency, governance, and conflict management. Such alignment would reduce complexity for global investors and foster a more coherent sustainable finance ecosystem.
“These initiatives raise the bar for accountability and help ensure ESG ratings remain a trusted tool for capital allocation and corporate strategy.”
Mike Zehetmayr, EY EMEIA Financial Services Risk, Compliance and Regulatory Technology Leader, comments: “Today’s FCA proposals support more transparent and reliable ESG ratings for financial services firms, and if implemented effectively, will reinforce the UK’s position as a global sustainable finance hub by unlocking capital for the transition.
“Robust ratings are critical to the credibility of markets, and to achieving the transition. In carbon markets today, inconsistent data and opaque scoring models create confusion and risk, slowing the flow of capital into projects that deliver real climate impact. Without trusted ratings, the £1.3 trillion annual climate investment science demands are at risk of stalling.
“Aligned to the four focus areas announced today by the regulator, a useful rating must be transparent, built on clear methodologies, and formed of readily accessible data. Ratings should be backed by strong governance, and be completely free from unmanaged conflicts-of-interest. If this is achieved, decision-makers in the industry will have better visibility over sustainability issues and are set up for a more successful transition.”
James Alexander, UKSIF CEO, said: “We are encouraged to see the FCA’s proposals to regulate ESG ratings providers.
“We particularly welcome the emphasis on transparency and consistency with international standards in the consultation paper – in line with previous International Organisation of Securities Commissions (IOSCO) recommendations.
“It is vital that investors and other market participants have full confidence in ESG ratings and their main objectives, given their growing role in shaping capital allocation decisions in the economy.
“We look forward to engaging with the details of the consultation paper and further assessing the scope of the rules with our members, which may require some thought and clarification.”
