Changes for green ratings in the UK
The FCA has published proposals to ensure that environmental, social and governance (ESG) ratings are transparent, reliable and comparable. The move is estimated to deliver around £500 million in net benefits over the next decade.
ESG ratings inform investment decisions, risk management, and regulatory reporting. Global spending on ESG data, including ratings, is projected to reach $2.2bn in 2025.
These proposals follow the decision by the government to bring ESG ratings within the FCA’s remit, supported by 95% of those who responded to its consultation. Introducing clear, proportionate rules for transparency and governance will help to build the market’s trust in ESG ratings and address concerns.
The FCA’s research shows around half of those who use ESG ratings are worried about how they are built (55%) and how transparent they are (48%). The proposals aim to address this and focus on 4 areas:
- Increased transparency – allowing easier comparisons for the benefit of both those who use ratings and those who are rated.
- Improved governance, systems and controls – to ensure clear decision-making and strong oversight and quality assurance.
- Identification and management of conflicts of interest.
- Setting clear expectations for stakeholder engagement and complaints handling.
There are also proposals on applying existing FCA rules to firms coming into the FCA’s remit. The proposed rules are designed to be proportionate to business size and risk.
“Our proposals will give those who use ESG ratings greater trust and confidence – supporting our goal of increasing trust and transparency in sustainable finance,” said Sacha Sadan, director of sustainable finance at the FCA.
“This will enhance the UK’s reputation as a global sustainable finance hub – attracting investment and supporting growth and innovation.”
