Wednesday, 29 October 2025
The UK Government has introduced new legislation to formally regulate ESG (environmental, social, and governance) rating providers, marking a major shift in how sustainability assessments are overseen in financial markets. The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 has now been laid before Parliament, with the Financial Conduct Authority (FCA) expected to consult on detailed rules by the end of the year.
The Order establishes a new regulatory framework for firms producing ESG ratings that influence investment decisions. Under the new law, “providing an ESG rating” will become a regulated activity where a rating or score—based on environmental, social or governance factors—has the potential to guide investment choices. The regulation will apply to firms that both produce and make ratings publicly available, covering opinions, scores, or ranking systems that assess ESG performance.
This development aligns the UK with similar EU measures but introduces narrower criteria. Unlike the EU’s ESG Ratings Regulation, the UK’s version only applies where ratings are likely to affect investment decisions and where firms both produce and distribute those ratings.
The scope also extends to overseas providers if their ratings are made available to UK clients, although there is an exemption for non-UK firms offering ratings without payment. In practice, this carve-out is expected to be of limited use to commercial providers.
To avoid overlap with existing regulations, the Order includes several exclusions. ESG ratings produced within the scope of other FCA-regulated activities, or as part of credit ratings, benchmark administration, or intra-group analysis, will generally not require separate authorisation. Exemptions also apply to academic, media, or non-profit outputs, provided they are not commercial in nature or used for ongoing investment purposes.
The rules will take effect in two stages. Initially, the FCA and the Financial Ombudsman Service will be empowered to begin consultations and accept applications for authorisation. The main enforcement date—when ESG rating providers must be authorised—is set for 29 June 2028.
The FCA has signalled that its upcoming consultation will draw on international standards, including recommendations from IOSCO, with an emphasis on transparency, governance, and conflict-management requirements. It will also issue guidance to help firms determine whether their activities fall within the scope of regulation.
For firms already producing or using ESG ratings, this marks the start of a transition period. Those directly involved in providing ratings will need to map their products and assess whether they meet the statutory definition. Others, such as asset managers, insurers, and investment banks, may also need to review internal ESG scoring systems to ensure they do not unintentionally fall within scope.
The UK’s move is part of a broader international effort to bring greater consistency and accountability to the ESG ratings market, which has faced criticism for inconsistent methodologies and opaque governance. By introducing a clear authorisation framework, the government aims to enhance investor confidence and ensure that ESG assessments used in financial decision-making are reliable, transparent, and well-supervised.
Source: CMS
