UK Regulator Moves to Bring Order to ESG Ratings Market

Key Takeaways

• ESG Ratings Transparency: FCA proposes rules to make ESG ratings more transparent, reliable and comparable.
• Economic Impact: Estimated £500 million in net benefits over the next decade.
• Stronger Oversight: New requirements for governance, conflict-of-interest management and complaint handling.
• Market Concerns Addressed: Nearly half of ESG rating users report limited clarity on methodologies and transparency.

Deep Dive

The UK is stepping deeper into the sustainable finance arena. The Financial Conduct Authority (FCA) has put forward plans to regulate ESG ratings (the scores that influence trillions in investment decisions) in an effort to make them far more transparent, reliable and comparable than they are today.

It’s a move the regulator believes could deliver roughly £500 million in net benefits over the next decade. And for the many investors who rely on ESG data, it may also deliver something less quantifiable but long overdue: trust.

Demand for ESG intelligence has exploded. Global spending on ESG data, from climate metrics to human-rights risk indicators, is expected to hit $2.2 billion in 2025. Yet beneath that surge lies a credibility problem.

The FCA’s own research found more than half of market participants worry about how ESG ratings are developed, and nearly half are concerned about the lack of transparency behind the scores. Those questions have followed the market for years, ranging from inconsistent methodologies to ratings that sometimes look more like opinions than analysis.

By bringing ESG rating providers formally into its regulatory remit, a shift supported by 95% of respondents in a recent consultation, the FCA is signaling that the era of self-policing is coming to an end.

What the FCA Wants to Fix

The proposals zero in on four problems that have long dogged ESG scoring:

• Opaque methodologies that make it hard to compare one provider to another
• Weak governance and quality controls behind the analytics
• Conflicts of interest, including when ratings providers offer other services to the same companies they rate
• Limited recourse for companies challenging their scores

Under the plan, expectations would scale based on a firm’s size and risk profile, a nod to the many smaller and niche ESG data providers now serving investors and corporates.

A Competitive Signal to Global Markets

Sacha Sadan, the FCA’s director of sustainable finance, framed the move not just as oversight, but as an investment in the UK’s role in global sustainable finance.

“Our proposals will give those who use ESG ratings greater trust and confidence—supporting our goal of increasing trust and transparency in sustainable finance,” Sadan said, adding that stronger standards would help attract capital, growth and innovation.

The rulebook itself won’t start from scratch. The FCA is drawing on the IOSCO recommendations and the industry-developed ICMA Code of Conduct, aiming to keep the UK aligned with global norms rather than creating an isolated framework.

With final rules expected in Q4 2026 and the full regime taking effect in June 2028, the FCA is choosing a gradual rollout. The regulator plans to support firms through the transition and ensure those stepping into oversight have enough runway to get authorized and compliant.

For now, the consultation is open through 31 March 2026, giving the market more than a year to weigh in.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.