The UK’s financial watchdog, the Financial Conduct Authority (FCA), published an announcement this Monday, December 1, saying that it has set out proposals to make ESG ratings more transparent, reliable, and comparable.

The goal is to rebuild trust in ESG ratings through the introduction of new rules that would influence transparency and governance.

FCA Will Be Responsible For The Quality Of ESG Ratings

ESG ratings are scores used to evaluate a company’s environmental, social, and governance performance and measure its sustainability and resilience to risks. However, the reliability of ESG ratings has been brought into question due to growing concerns, such as the lack of transparency and comparability in how the ratings are assessed.

The FCA said that global spending on ESG data, including ratings, is projected to reach $2.2 billion in 2025, and the move is estimated to deliver around £500m in net benefits over the next decade.

The new proposals follow the decision by the UK government to bring ESG ratings into the FCA’s remit, which was supported by 95% of those who responded to its consultation.

This suggests that the demand for clear and proportionate rules for transparency and governance is overwhelming. Introducing such rules will, therefore, help build the market’s trust in ESG ratings and address the ongoing concerns.

Concerns About The ESG Ratings’ Reliability Are On The Rise

The FCA has found that so far, more than half (55%) of those who use ESG ratings are worried about how they are built, and how transparent they are (48%).

FCA’s proposals intend to address this by focusing on four key areas – increased transparency, improved governance, identification and management of conflicts of interest ,and setting clear expectations for stakeholder engagement and complaints handling.

Beyond that, the regulator has also introduced proposals on applying its existing rules to companies that will now find themselves in the FCA’s jurisdiction. Ultimately, its philosophy is that market trust, increased through proportionate oversight, will benefit businesses, thus reinforcing the UK’s reputation as a global sustainable finance hub.

The FCA’s director of sustainable finance, Sacha Sadan, said: “Our proposals will give those who use ESG ratings greater trust and confidence – supporting our goal of increasing trust and transparency in sustainable finance.”

It is also worth noting that the proposals draw on the existing voluntary industry code of conduct, as well as the International Organization of Securities Commissions’ recommendations to support consistency and international competitiveness. Right now, the FCA is asking for feedback on the proposals, and anyone willing to provide it can do so until March 31, 2026.