The FCA has published proposals to ensure that environmental, social and governance (ESG) ratings are transparent, reliable and comparable, a move the regulator estimates will deliver around £500m in net benefits over the next decade.
The 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. They are intended to introduce 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 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.
There are also proposals on applying existing FCA rules to firms coming into the FCA’s remit, with the proposed rules designed to be ‘proportionate to business size and risk’.
Strengthened market trust through proportionate oversight benefits business, the regulator said, and will reinforce the UK’s reputation as a global sustainable finance hub, supporting innovation and continued growth, as well as supporting 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 Organisation 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 said it will provide support for those firms wishing to become authorised as an ESG rating provider.
Commenting on there proposals, Sophie Meatyard, Head of Fund Research at ESG, sustainability and impact data provider, MainStreet Partners, said the firm welcomed the decision to regulate ESG ratings providers under the FCA 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.”
The proposal document can be found HERE.
