The Financial Conduct Authority (FCA) has finalised its regulatory framework for ESG ratings providers, introducing new disclosure requirements covering data quality, methodologies and artificial intelligence (AI).
Under the regime, all in-scope ESG ratings providers will need FCA authorisation from 29 June 2028 as the regulator seeks to improve transparency and accountability in the market.
The final policy statement, published today (3 November), follows a consultation launched in December 2025, with the FCA retaining most of its proposals – but making changes to transparency and stakeholder engagement requirements following feedback from 90 respondents.
Among the additions, providers will be required to disclose more information about data quality and verification, the use of estimates, rating review frequency and methodology changes. The FCA has also clarified expectations around AI oversight, peer groups and rating limitations.
However, it has eased some reporting requirements, allowing certain disclosures at product level rather than for individual ratings, while companies receiving ESG ratings will only receive additional detailed disclosures on request.
The regulator has also removed proposed requirements to disclose unresolved factual challenges and expected rating review dates, while retaining protections for commercially sensitive information.
Meanwhile, providers must notify companies at least two business days before making a new rating available for the first time, but will no longer have to wait for their feedback before publishing it.
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Alongside the transparency measures, providers will be subject to governance and conflicts of interest requirements, as well as the Senior Managers and Certification Regime.
The FCA has also clarified which ESG data products and services fall within the scope of regulation, including certain activities involving asset managers.
Gemma Woodward, head of responsible investment at Quilter Cheviot, said the final rules should help investment professionals make more informed decisions.
“The FCA’s confirmation of the final policy statement for ESG ratings is a welcome step to make a burgeoning industry a more transparent, and ultimately useful, one,” she said.
“ESG ratings have grown in popularity over recent years as demand for responsible and sustainable investments proliferated quickly at the turn of the decade, yet so much of what went into them was subjective and interpreted in differing ways.”
However, Woodward warned that greater transparency would not eliminate differences between ESG ratings providers or replace the need for investor due diligence.
“ESG rating providers will continue to have differing methodologies, definitions and samples, and while they must disclose this, it is up to allocators to interrogate that data and not allow it to replace thorough due diligence,” she said.
The FCA has confirmed it will not prescribe a single methodology for producing ESG ratings, instead supporting different approaches to assessing environmental, social and governance factors.
Woodward added: “The final regime has kept that focus on transparency, but as the market develops we need to make sure the data being received translates into genuinely useful information for investors rather than disclosure for disclosure’s sake.”
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