The UK’s Financial Conduct Authority (FCA) has set out new proposals to make environmental, social and governance (ESG) ratings more transparent, reliable and comparable, in a move expected to generate around £500 million in net benefits over the next decade.
ESG ratings play an increasingly influential role in investment decisions, risk management and regulatory reporting. Global spending on ESG data and ratings is forecast to reach $2.2 billion by 2025. The government recently brought ESG ratings formally within the FCA’s regulatory scope, a change supported by 95% of respondents to its consultation.
The FCA said the proposed rules aim to strengthen trust in the rapidly growing ESG ratings market and address concerns identified through its research. Around 55% of users said they were unsure how ratings were constructed, while 48% expressed concerns about transparency.
The proposals focus on four key areas:
- Greater transparency to allow easier comparison between ratings and help both users and rated entities understand methodologies.
- Stronger governance, systems and controls to ensure high-quality decision making, oversight and assurance.
- Clear rules to prevent and manage conflicts of interest.
- Requirements for stakeholder engagement and complaints handling.
The regulator also plans to apply existing FCA obligations to firms newly brought under its remit, with rules scaled proportionately according to business size and risk.
The FCA said improved oversight will support market confidence and reinforce the UK’s position as a global hub for sustainable finance. It will also back the government’s industrial strategy, which places sustainable finance at its core.
Sacha Sadan, the FCA’s director of sustainable finance, said the proposals are designed to improve trust in ESG assessments.
“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 new framework draws on the existing voluntary industry code of conduct and recommendations from the International Organization of Securities Commissions (IOSCO) to maintain international alignment and competitiveness.
The consultation is open until 31 March 2026. Final rules are expected in late 2026, with the regime scheduled to take effect from June 2028. The FCA said it will support firms seeking authorisation as ESG rating providers.
