UK’s Financial Conduct Authority to regulate ESG rating providers

The UK’s financial regulator, the Financial Conduct Authority (FCA), is set to bring ESG ratings firms into its remit to improve transparency and comparability.

With global spending on ESG data, including ratings, projected to reach US$2.2bn in 2025, several governments are seeking to regulate this activity: ESG ratings inform investment decisions but methodologies so far have been seen as too opaque.

In the UK, 95% of people who responded to a government consultation on the topic supported the idea of ESG ratings firms being regulated by the FCA, whose research shows that around half  of those who use these ratings are worried about how they are built (55%) and how transparent they are (48%).

“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,” said Sacha Sadan, director of sustainable finance at the FCA.

Greater governance transparency for ESG ratings

The FCA estimates regulating ESG ratings providers and introducing clear, proportionate rules for transparency and governance could improve market trust and deliver around £500m in net benefits over the next decade.

The proposals published today (December 1) focus on four areas: increased transparency to allow easier comparisons for the benefit of 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; and setting clear expectations for stakeholder engagement and complaints handling.

These proposals draw on the existing voluntary industry code of conduct and International Organization of Securities Commissions (IOSCO) recommendations to support consistency and international competitiveness, and 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,” the FCA explained in a statement.

Consultation is now open on its proposals until March 31, 2026, within the new regime due to come into effect from June 2028.