The UK’s Financial Conduct Authority (FCA) has welcomed new legislation that will, for the first time, bring ESG ratings providers under formal regulation — a move aimed at strengthening the integrity and transparency of sustainable finance.
Under the new rules, ESG ratings firms operating in the UK will be required to meet stringent standards across four key areas: transparency, governance, systems and controls, and the management of conflicts of interest. The framework is designed to ensure that investors, companies and policymakers can rely on ESG assessments that are consistent, fair and well-governed.
The legislation grants the FCA new powers to authorise, supervise and, where necessary, enforce compliance among ESG ratings providers. It will require these firms to disclose clear information about their methodologies, data sources, and potential biases — helping market participants understand how ratings are determined.
The FCA said it intends to consult later this year on detailed rules and guidance for implementation, working closely with government, industry and other stakeholders. Its goal is to create a regime that is “practical, proportionate and supports innovation,” while aligning with international best practices.
The regulator emphasised that ESG ratings play a critical role in guiding sustainable investment decisions and capital allocation. As the market for sustainable finance grows rapidly, the new oversight aims to protect investors from misleading claims, ensure comparability between ratings, and reinforce the UK’s position as a global leader in green finance.
The new regulatory framework will take effect once the statutory instrument is approved by Parliament, after which ESG ratings firms will need to apply for authorisation or adjust their operations to comply with FCA requirements.
The FCA encouraged firms to begin preparing early — assessing whether their business models, governance structures, and data methodologies will fall under the scope of regulation.
By introducing these rules, the UK joins jurisdictions such as the European Union and Japan, which have already begun establishing regulatory regimes for ESG data and ratings providers. The move signals a global shift toward tighter scrutiny and greater accountability in the ESG ratings industry.
