• UK proposes a regulated regime for ESG ratings, with an estimated £500 million in net economic benefits over the next decade.
• Rules focus on transparency, governance and conflict-management amid rising concerns from investors about opaque methodologies.
• The regime positions the UK to compete in a fast-growing global ESG data market projected to reach $2.2 billion in 2025.

The UK’s Financial Conduct Authority released detailed proposals to regulate the ESG ratings industry, moving to rein in inconsistencies that have frustrated investors, asset managers, corporates and policymakers. The plan follows the government’s decision to bring ESG rating providers under the regulator’s remit, a shift supported by 95 percent of respondents to an earlier consultation.

ESG ratings have become a backbone of modern capital allocation, influencing fund construction, portfolio risk assessments, stewardship strategies and regulatory disclosures. Yet the market has expanded faster than oversight. The FCA’s own research found deep unease among users: 55 percent worry about how ratings are built and 48 percent question their transparency. Those concerns, combined with the sector’s scale and rising commercial stakes, prompted the regulator to act.

The FCA estimates the new regime will deliver around £500 million in net benefits over the next decade through reduced risk, higher comparability and more efficient decision-making across the investment chain.

A four-pillar framework aimed at clarity and accountability

The proposals centre on four areas that have repeatedly surfaced in market debates: transparency, governance, conflicts of interest and stakeholder engagement.

First, rating providers would be required to publish clearer information on methodologies, data sources, assumptions and limitations. The aim is to allow meaningful comparison between providers and give rated companies greater visibility into how scores are constructed.

Second, governance expectations would increase. Providers would need robust systems and controls, documented decision-making and strong oversight structures to ensure ratings are produced with consistency and quality assurance.

Third, the FCA sets out clear expectations for identifying, managing and disclosing conflicts of interest. With many rating providers offering adjacent services, market participants have raised concerns about potential incentives that could skew assessments.

Finally, firms would need defined channels for stakeholder engagement and complaints handling. The FCA argues that transparent, systematic engagement will reduce disputes and enhance the credibility of scores used across markets.

The regulator emphasises that rules will be proportionate, calibrated to the size, risk profile and business model of each provider. Smaller firms, which contribute to market diversity and innovation, would not face the same requirements as large global players.

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A growing global market forces regulatory alignment

Global ESG data spending is projected to reach $2.2 billion next year, underscoring how rapidly ratings have become embedded in investment practice. As asset managers integrate ESG metrics into risk management frameworks and corporate issuers face rising disclosure demands, the reliability of ratings has become a material financial issue.

The FCA’s proposals draw on the voluntary industry code of conduct and the International Organization of Securities Commissions’ recommendations. That alignment is designed to strengthen international competitiveness and limit friction for firms operating across multiple jurisdictions. It also reflects the geopolitical reality that sustainable finance regulation is increasingly part of national industrial strategies.

Sacha Sadan, the FCA’s director of sustainable finance, said the framework will provide material confidence to investors. “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.”

What C-suite leaders and investors should watch now

If implemented, the regime will place the UK among the first major jurisdictions to regulate ESG ratings explicitly, creating a reference point for other markets considering similar steps. For corporates, clearer methodologies could reshape how sustainability strategies are evaluated externally, affecting investor engagement, cost of capital and competitive positioning.

For asset managers, a regulated landscape could reduce operational risk and limit divergence between ratings, though it may also prompt shifts in provider selection and stewardship practices. Private-sector executives should also anticipate changes to regulatory reporting workflows if data transparency rules reshape the inputs used by rating agencies.

Next steps and wider significance

The consultation is open until 31 March 2026. Final rules are expected in the fourth quarter of 2026, with the new regime taking effect from June 2028. The FCA said it will support firms seeking authorisation as ESG rating providers.

For global sustainable finance, the UK’s move adds momentum to a broader regulatory realignment. As ESG data becomes a core part of financial plumbing, markets are converging around the need for standards that balance innovation with integrity. The outcome of this process will influence not only how capital is priced, but also how sustainability commitments are judged across borders.

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