The UK's Financial Conduct Authority has set out proposals to rebuild trust in ESG ratings with the introduction of new rules governing transparency and governance.
ESG ratings are evaluations of a company, product or fund’s performance across environmental, social and governance factors and help to inform investment decisions, risk management and regulatory reporting. Global spending on ESG data, including ratings, is projected to reach $2.2bn in 2025.
However there have been growing concerns over the reliability of ESG scores, owing to a lack of transparency and comparability in how the ratings are assessed.
The overhaul follows a decision by the government to bring ESG ratings within the FCA’s remit, with a view to introducing clear, proportionate rules for transparency and governance to rebuild market trust 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%).
As part of the the proposed framework, the FCA wants to make it easier for firms to understand and benchmark ratings for comparative purposes. To ensure clear decision-making and strong oversight and quality assurance, the watchdog is proposing improved governance, systems and controls, alongside identification and management of conflicts of interest. The new rules will also set clear expectations for stakeholder engagement and complaints handling.
Sacha Sadan, director of sustainable finance at the FCA, says: "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 consultation is open until 31 March 2026.
Final rules are expected in Q4 2026, with the new regime coming into effect from June 2028.