As part of the government’s decision to bring ESG ratings into the regulator’s scope, it said it would publish clear rules for transparency, with an aim to build trust.
The FCA carried out research and found 55% of people who used ESG ratings were worried about how they were developed, and 48% had concerns about how transparent they were.
The regulator said it would focus on increasing transparency, improving governance, systems and controls for clear decision-making, and identification and management of conflicts of interest.
It has also proposed to set clear expectations for stakeholder engagement and complaint handling.
The FCA’s consultation noted that around 5,400 financial services firms spent £622m in total on data products, which included ESG ratings in 2024, and around 1% of retail lending was influenced by ESG ratings.
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ESG ratings are also used for around 1% of commercial and retail lending decisions, as well as around 1% of insurance underwriting.
Sacha Sadan, director of sustainable finance at the FCA, said: “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 FCA’s consultation on its proposals is open until 31 March 2026, and the final rules are expected in Q4 next year, with a view to them taking effect from June 2028.
