Britain moves to regulate ESG ratings

Watchdog developing its regime in time for finalised legislation.

The UK wants the provision of environmental, social, and governance (ESG) ratings to be a regulated activity.

To regulate ESG ratings providers in the UK, the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 has to be amended. Order 2025 is now awaiting approval by resolution of each House of Parliament.

Commenting on the development, the Financial Conduct Authority (FCA) stated: "ESG ratings continue to play a critical role in influencing investment and capital allocation decisions.

"The legislation, which was broadly supported by the industry, will provide us with the necessary powers to regulate ESG ratings providers – an important step towards ensuring that there are transparent, reliable, and comparable ESG ratings."

In the watchdog's view, the expanded remit will be an important milestone in Britain's commitment to improving trust in the market.

The FCA went on to say: "In parallel with the government finalising its legislation, we have been developing our regime for ESG ratings. Now that the legislation has been laid before Parliament, we intend to consult on our proposed rules before the end of the year."

According to the regulator, its focus will be on transparency, governance, systems and controls, and conflicts of interest. Meanwhile guidance will be provided so firms can assess whether their activities fall under regulation.