The UK government will introduce legislation in 2025 to regulate ESG ratings providers, as announced by Chancellor of the Exchequer Rachel Reeves and confirmed by the finance ministry, HM Treasury. The new law will place ESG ratings providers under the supervision of the Financial Conduct Authority (FCA).
This move follows growing demand for oversight in the ESG ratings sector, which has seen rapid expansion as investors increasingly incorporate ESG factors into their decisions. The legislation aims to address the lack of transparency in ESG ratings, aligning with recommendations made by the International Organization of Securities Commissions (IOSCO) in November 2021. IOSCO had urged regulators to enhance transparency and apply oversight in the ESG ratings space, recommending that providers disclose potential conflicts of interest and clarify the data and methodologies they use. Following these directives, many authorities, including the EU, have moved to regulate ESG assessment providers.
In the UK, the FCA introduced a regulatory framework for ESG rating providers earlier this year, and the previous government launched a consultation on the law as part of its green finance strategy new. The upcoming rules aim to boost growth, support a clean economy and ensure that companies in sectors such as defense are not penalized by unclear regulations.