The Financial Conduct Authority (FCA) has published a consultation on proposals to make environmental, social, and governance (ESG) ratings more transparent, reliable, and comparable.

The regulator said the changes were estimated to deliver approximately £500m in net benefits over the next decade.

Its proposals come following the government decision to bring ESG ratings into the FCA’s remit, and aim to introduce clear and proportionate rules for transparency and governance to help build the market’s trust in ESG ratings and address concerns.

Research from the FCA found that 55 per cent of those who use ESG ratings were concerned about how they are built and 48 per cent were worried about their transparency.

To address these concerns, the proposals focus on four areas: increased transparency to allow easier comparisons; improved governance, systems, and controls to ensure clear decision-making alongside strong oversight and quality assurance; identification and management of conflicts of interest; and setting clear expectations for stakeholder engagement and complaints handling.

The consultation also proposed applying existing FCA rules to firms coming into the FCA’s remit, which are designed to be proportionate to business size and risk.

The regulator said that strengthened market trust through proportionate oversight would benefit business, which will reinforce the UK’s reputation as a global sustainable finance hub to support innovation and growth.

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

The consultation is open until the end of March 2026, with final rules expected in Q4 2026 and the new regime coming into effect from June 2028.

The FCA said it would provide support for firms that wished to become authorised as an ESG ratings provider.

“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 FCA director of sustainable finance, Sacha Sadan.

“This will enhance the UK’s reputation as a global sustainable finance hub – attracting investment and supporting growth and innovation.”

UK Sustainable Investment and Finance Association CEO, James Alexander, added: “We are encouraged to see the FCA’s proposals to regulate ESG ratings providers.

“We particularly welcome the emphasis on transparency and consistency with international standards in the consultation paper – in line with previous IOSCO recommendations.

“It is vital that investors and other market participants have full confidence in ESG ratings and their main objectives, given their growing role in shaping capital allocation decisions in the economy.

“We look forward to engaging with the details of the consultation paper and further assessing the scope of the rules with our members, which may require some thought and clarification.”

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