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The UK financial services regulator, the Financial Conduct Authority (FCA), has announced proposals to ensure a new level for ESG ratings.

The newly publicised standards are designed to make ESG ratings transparent, reliable, and comparable, a move expected to deliver around £500 million in net benefits over the next decade.

ESG ratings inform investment decisions, risk management and regulatory reporting and are now a large operational matter for many fund managers. According to the FCA’s press release, global spending on ESG data, including ratings, is projected to reach $2.2 billion in 2025.

“Introducing clear, proportionate rules for transparency and governance will help to build the market’s trust in ESG ratings and address concerns."

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, it said.

“Introducing clear, proportionate rules for transparency and governance will help to build the market’s trust in ESG ratings and address concerns,” it said.

These changes will be important to fund operators as they will enable more trustworthy ESG ratings that will reduce the admin burden for staff.

The FCA’s research shows that 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.

What did the proposals contain?

The proposals draw on the existing voluntary industry code of conduct and the International Organization of Securities Commissions’ (IOSCO) recommendations to support consistency and international competitiveness.

The final rules are expected in Q4 2026, with the new regime coming into effect from June 2028, according to the FCA.

Therefore, from that date, any firm wishing to provide certain types of ESG ratings in the UK will need FCA authorisation.

The FCA feedback consultation period is open until 31 March 2026.

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. 

What was industry reaction?

Industry reaction has largely been positive to the proposals, with most happy that the FCA’s rules will add more legitimacy and professionalism.

It will also, they say, aid in the UK being seen as an ESG hotspot.

“The phased approach allows the industry to prepare effectively, while aligning with international developments.”

"We welcome the UK’s decision to regulate ESG ratings providers,” said Sophie Meatyard, Head of Fund Research at ESG, sustainability and impact data provider, MainStreet Partners. “This is a step toward improving transparency, consistency, and trust in the ESG ratings market, which plays a critical role in guiding sustainable investment decisions. “

Meatyard said she also viewed the extended timeline positively. “The phased approach allows the industry to prepare effectively, while aligning with international developments.”

In particular, the EU’s ESG Ratings Regulation will come into force in July 2026.

“We hope that the UK and EU regimes will converge on key principles such as transparency, governance, and conflict management,” she said. “Such alignment would reduce complexity for global investors and foster a more coherent, sustainable finance ecosystem.”

There has been a raft of new legislation in certain areas in order to build more frameworks for ESG ratings and other aspects of its industry. In May this year, the European Securities and Markets Authority’s (ESMA) naming rules came into effect. The naming rules aimed to make it simpler to comply with anti-greenwashing rules.

“Our proposals will give those who use ESG ratings greater trust and confidence – supporting our goal of increasing trust and transparency in sustainable finance,” said Sacha Sadan, Director of Sustainable Finance at the FCA.

 

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