UK government to introduce law regulating ESG rating agencies

August 9th, 2024

The UK’s chancellor of the exchequer Rachel Reeves has announced the government will propose a new bill introducing regulations for ESG rating agencies.

On a visit to Toronto, Reeves announced that the bill would be introduced next year, the Financial Times reports.

It will aim to standardise the way ratings are provided and improve transparency around what criteria providers use to rate companies.

This, in turn, will reduce the risk of greenwashing and improve overall investor trust in ESG ratings agencies.

Reeves said the Financial Conduct Authority (FCA) will outline the proposed rules in the bill.

The FCA began working on a code of conduct for ESG rating providers back in November 2022, forming a working group which included M&G, Moody’s, London Stock Exchange Group, and Slaughter and May.

A month later, the government launched an ESG ratings consultation with plans to bring ESG ratings providers under the remit of the FCA in Q1 2023.

To reduce the reporting burden on businesses, the new rules will be designed to mirror the existing requirements in the EU.

The European Commission introduced its rules for ESG rating providers in June 2023 as part of a package of new regulations for its sustainable finance sector.

The EU’s rules included requirements for rating providers to be registered with the European Securities and Markets Authority (ESMA) and clear rules on the prevention of conflicts of interest to avoid greenwashing.

The bill will form part of the new government’s plans to boost the UK’s finance industry, including improving transparency and bolstering investor confidence.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.