The UK government has finalised a law to regulate ESG rating providers, marking a significant step towards enhancing transparency and governance within the ESG sector. Under this new legislation, ESG rating providers operating in the UK, both domestic and foreign, will fall under the regulatory oversight of the Financial Conduct Authority (FCA), effective from June 2028. The move comes after a 2021 recommendation from the International Organization of Securities Commissions (IOSCO), urging global regulators to enhance oversight of ESG ratings to tackle issues such as inconsistent methodologies, lack of transparency in data sources, and potential conflicts of interest.

The UK began consulting on the regulation in 2023, with draft legislation published in 2024, leading to the final framework announced this year. This regulatory shift is particularly important as ESG ratings have become an increasingly influential factor in investment and business decision-making. As the demand for reliable, comparable, and actionable ESG data grows, this regulation seeks to address the existing shortcomings in the market. By placing providers under the FCA’s supervision, the government aims to improve data integrity, accountability, and trust in ESG ratings. 

The significance of FCA regulation for ESG ratings

What does FCA regulation mean for ESG ratings providers?

The legislation gives the FCA the authority to oversee how ESG ratings are produced and used in the UK. While the specific rules and requirements are not yet final, the FCA has announced it will consult on its proposed rules before the end of 2025. The specific obligations for providers will be determined through this consultation. The overarching aim is to enhance consistency, reliability, and trust in ESG ratings, thereby supporting informed investment and business decisions.

Why is the FCA regulation needed?

The ESG rating landscape currently lacks standardisation, with different providers using varying criteria and methodologies. This results in inconsistent ratings and can create confusion for investors and companies seeking to make well-informed decisions. To address these challenges, the FCA is developing a regulatory framework aimed at improving transparency, comparability, and accountability across ESG ratings.

This initiative aligns with global efforts to strengthen sustainable finance. As part of this framework, the FCA’s proposed approach will focus on four key areas: transparency, governance, systems and controls, and conflicts of interest. These areas are intended to support greater clarity and trust in how ratings are produced and used. The FCA has also stated, “We will also be producing guidance to help firms assess whether their activities will fall under regulation and require our authorisation.”

Impact on companies – Increased scrutiny over ESG data quality and ratings

As the FCA moves toward regulating ESG ratings, companies will face greater scrutiny regarding the quality, accuracy, and consistency of the ESG data they provide. Poor or unreliable data could result in weaker ratings, potentially leading to a loss of investor confidence, reduced access to capital, and reputational harm. With ESG ratings playing an increasingly pivotal role in investment decisions, organisations will need to ensure that their data is credible, consistent, and transparent to maintain stakeholder trust and market confidence.

How companies are preparing for FCA regulation and enhanced scrutiny

The importance of preparing for FCA regulation ahead of June 2028

With the regulation taking effect in June 2028, companies need to begin preparing now. This proactive approach will allow businesses to ensure they comply when the regulation comes into force, avoiding last-minute scrambling. Companies that start early will have time to implement the necessary internal controls, governance structures, and reporting frameworks needed to meet the FCA’s requirements.

Improving internal policies for ESG data governance

To prepare for the upcoming regulation, companies should improve their internal policies on data governance. This includes enhancing data collection processes, ensuring ESG metrics are consistent, and establishing internal audits to verify the integrity of ESG data. Many businesses are also adopting new technologies to support data management and reporting, such as advanced ESG data platforms that ensure transparency and traceability.

Training and compliance measures for teams

Training teams responsible for ESG data is another crucial step in preparing for the FCA regulation. Companies should invest in training and development to ensure that their employees understand the regulatory changes and are equipped to comply. Many businesses are also considering working with external consultants or auditors who can provide expertise in ESG data governance and compliance.

Conclusion

The upcoming FCA regulation on ESG ratings represents a major shift for companies operating in the UK. With increased scrutiny on ESG data quality, methodologies, and ratings outcomes, organisations cannot afford to delay action. Failing to prepare now could result in reputational damage, loss of investor confidence, and operational challenges once the rules come into force in 2028. Companies that act early—strengthening data governance, improving transparency, and embedding robust compliance processes—will not only mitigate these risks but also position themselves as trusted, forward-looking leaders in ESG. The time to start preparing is now.

At EnableGreen, we specialise in connecting organisations with the ESG and sustainability talent you need to navigate the evolving regulatory landscape. As companies prepare for increased scrutiny over ESG data quality and rating outcomes, having the right expertise in place is critical.