ESG Ratings to be Regulated in UK

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by KnowESG
KnowESG_ESG Ratings to be Regulated in UK
Image courtesy of Reuters

The UK government is advancing its plans to regulate ESG ratings agencies, joining a global movement to bring oversight to this burgeoning industry.

Formal proposals are expected as early as January 2024, following a three-month consultation that concluded in June. This move reflects growing concerns about the lack of regulation in the ESG sector, which has a significant impact on the allocation of trillions of pounds in sustainable investments.

The Treasury is exploring whether new legislation is required or if existing laws can be utilised. While a new regulatory body is being considered, expanding the FCA's authority is more likely.

The UK's actions follow similar moves by the EU, which proposed new ESG ratings rules in June. The FCA has been encouraging a voluntary code of conduct, and a working group is set to release this code next month.

Sacha Sadan, FCA's head of ESG, emphasised the code's international consistency and the proactive approach to regulation.

Pressure for ESG regulation has been mounting since 2021, with concerns raised about the impact on industries like defence.

Chancellor Jeremy Hunt has indicated the government's desire for transparency and ethical conduct in the ESG ratings market.

Critics have called the ESG sector "subjective" and criticised the proliferation of "nonsense firms."

Lindsey Stewart of Morningstar supports regulation that ensures consistency, transparency, and independence but stresses the need for flexibility to accommodate innovation.

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Source: Financial Times


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