The new Financial Conduct Authority (FCA) framework brings ESG rating providers into UK regulation for the first time, covering a market that plays an increasingly important role in investment decisions.

The new framework introduces requirements covering transparency, governance, systems and controls, the management of conflicts of interest, and engagement with users of ESG ratings and rated entities. It is designed to be proportionate to firms' size and activities and is informed by international and existing standards.

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.

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.”

The new framework takes effect on 29 June 2028. From that date, firms providing ESG ratings in the UK will need FCA authorisation and to have the relevant permission before carrying on that activity, unless an exemption applies. ESG rating providers operating in the UK market will need to apply for FCA authorisation from 24 June 2027. We are staggering application periods and encourage firms to apply as early as possible within their window.

There is strong investor demand for ESG information. The FCA's Financial Lives Survey 2024 found 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.

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