In August 2024, the UK government announced that it would create legislation to regulate the ESG ratings industry. Over a year later, we finally have that legislation in hand. A draft statutory instrument has now been laid before Parliament. If approved, the Financial Conduct Authority (FCA) will have power to regulate ESG ratings. The FCA signaled its approval for the legislation, stating in a press release:
“ESG ratings continue to play a critical role in influencing investment and capital allocation decisions. The legislation, which was broadly supported by the industry, will provide us with the necessary powers to regulate ESG ratings providers – an important step towards ensuring that there are transparent, reliable and comparable ESG ratings. In parallel with the Government finalising its legislation, we have been developing our regime for ESG ratings. Now that the legislation has been laid before Parliament, we intend to consult on our proposed rules before the end of the year.”
The FCA is already working on its rules framework based on International Organization of Securities Commissions (IOSCO) recommendations. The agency hopes to consult on these proposed rules before the end of the year. This marks a major milestone for ESG ratings in the UK. Up to this point, there has only been a voluntary code of conduct in place for ESG ratings providers. If the legislation goes through, the UK will join the EU in officially regulating ESG ratings in its markets.
Our members can learn more about ESG ratings here.
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