The Financial Conduct Authority (FCA) has introduced rules to regulate environmental, social and governance (ESG) rating providers in the UK for the first time, aiming to improve the quality and transparency of ratings used by investors.

The new framework brings ESG rating providers under FCA supervision and sets out requirements covering governance, transparency, systems and controls, conflict management and engagement with users of ESG ratings and the organisations they assess.

The regulator said the rules will improve the reliability and comparability of ESG ratings, helping investors make better informed decisions.

The regime applies to firms that provide ESG ratings and assessments in the UK market. The FCA has also published guidance to help organisations determine whether the new rules apply to their activities.

According to the FCA, ESG ratings help investors, lenders and benchmark administrators assess companies, assets and financial products against environmental, social and governance criteria when making investment and risk management decisions.

The regulator added that its research has found that 72 per cent of adults with investments or a defined contribution pension wanted their investments to have a positive impact alongside delivering financial returns.

Laura Dawes, director of authorisations and sustainable finance at the FCA, said: “Trusted information is essential for well-functioning markets. These rules will help improve transparency and raise standards across the ESG ratings market while supporting competition, innovation and growth.

“Firms should check now whether they are in scope and start preparing for authorisation. We'll continue to provide practical support to help them prepare.”

ESG rating providers will be able to apply for FCA authorisation from 24 June 2027. The regulator said it will stagger application windows and encouraged firms to apply as early as possible. The framework will take full effect on 29 June 2028. From that date, firms providing ESG ratings in the UK must have FCA authorisation unless an exemption applies.

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