FCA Proposes New Rules to Restore Trust in ESG Ratings

The UK’s Financial Conduct Authority (FCA) has unveiled new proposals aimed at rebuilding confidence in ESG ratings through enhanced rules governing transparency and governance.

The planned overhaul follows the UK government’s decision to bring ESG ratings within the FCA’s regulatory remit. This move addresses growing industry concerns over rating reliability and comparability.

ESG ratings evaluate a firm’s performance across Environmental, Social, and Governance factors, critically informing investment decisions and risk management across the financial sector.

The urgency stems from widespread concerns about the lack of transparency in how ratings are assessed and the resulting comparability issues between scores issued by different providers.

The proposed framework intends to make it significantly easier for firms to understand and benchmark ratings. This will allow for more meaningful comparative analysis of sustainable finance products.

Key features of the proposal include requirements for improved governance, robust systems and controls, and clear protocols for identifying and managing conflicts of interest within rating providers.

FCA research highlights the issue: around 55% of users of ESG ratings are worried about how these scores are constructed, with 48% concerned about transparency. This data point underscores the need for regulatory intervention.

Sacha Sadan, Director of Sustainable Finance at the FCA, stated the proposals will give users “greater trust and confidence,” supporting the goal of increasing trust and transparency in sustainable finance.

Brokers, asset managers, and FinTech firms should review the consultation, which remains open until March 31, 2026. Final rules are expected by Q4 2026, with the new regulatory regime projected to take effect in June 2028.