The latest developments in the sustainability space.

New FCA Rules
The UK's Financial Conduct Authority (FCA) said yesterday that new FCA rules will bring environmental, social and governance (ESG) rating providers into UK regulation for the first time, covering a market that plays an important role in investment decisions.

The new rules will cover transparency, governance, systems and controls, the management of conflicts of interest, and engagement with users of ESG ratings and rated entities. They are designed to be proportionate to firms' size and activities and are informed by international and existing standards.

From 29 June 2028, when the new framework takes effect, firms providing ESG ratings in the UK will need FCA authorisation and the relevant permission before carrying on that activity, unless an exemption applies. ESG rating providers operating in the UK market will also need to apply for FCA authorisation from 24 June 2027, the FCA said in a statement.

The regime applies to firms or organisations providing ESG ratings and assessments to ensure reliability across the market. The FCA has published guidance to help firms understand whether they may be in scope. It will also be providing webinars and access to its Pre-Application Support Service to help firms prepare.

“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,” Laura Dawes, director of authorisations and sustainable finance at the FCA, said. “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 ratings generally assess how companies or other entities, assets, or financial products perform against environmental, social and governance criteria. They are used by asset managers, lenders, benchmark administrators and others to inform capital allocation decisions and manage risk, among other uses.

The approach is shaped by international standards, including recommendations from the International Organization of Securities Commissions (IOSCO), the FCA said. The final rules follow the FCA’s consultation, CP25/34, which opened on 1 December 2025 and closed on 31 March 2026.  The regulatory framework follows government legislation bringing the provision of ESG ratings within the FCA’s remit in October 2025. Ninety-five per cent of respondents to the government’s consultation supported the move.

While the regime regulates how ESG ratings are produced, governed and communicated, it does not prescribe a particular sustainability view or methodology. The strong investor demand for ESG was reflected in the FCA's Financial Lives Survey 2024, which found that 72 per cent of adults with investments or a defined contribution pension wanted their investments to do some good as well as provide a financial return.