Skip to main content Skip to footer

Future regulatory regime for ESG ratings providers

The HM Treasury consultation on Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers closed on 30 June 2023. The significant focus on sustainability across the economy attracted a diverse range of respondents to the consultation paper that included investment managers, asset owners, banks, ESG data and ESG ratings providers. It shows there are many beneficiaries to the proposed regulation and there is a strong desire by users of ESG data and ratings to set standards that promote confidence in the ESG data and ratings market.

Currently, the proposed regulation is targeted at providers of ESG ratings only and excludes providers of raw data. Many investment managers believe that data and fund ratings providers should also be in scope to ensure that there is good governance over data creation and collection. This will promote the trustworthiness of ESG data.

The use of ESG data in proprietary ratings developed by fund managers is equally risky I would say if the underlying data is not solid.” Global Head of Responsible Investment.

In the meantime, a voluntary Code of Conduct for ESG ratings and data providers, convened by the FCA, is being developed by an industry working group consisting of investment managers, banks, industry bodies and asset owners. HM Treasury and other regulators are observers to the working group.

You can access the working group’s progress here:

ESG Data and Ratings Code of Conduct Working Group | IRSG or ESG Data and Ratings Code of Conduct » ICMA (

Summary of the consultation paper


HM Treasury seeks to improve financial services regulation to protect consumers and to promote the UK’s position as a world-leading financial services centre.
In 2020, 65% of institutional investors were found to use ESG ratings at least once a week. This influence becomes more material when firms embed ESG ratings into their investment processes (e.g., in benchmarks and indices, or in investment mandates).

Areas of concern: Include lack of transparency, poor governance and systems and controls, poor management of conflicts of interest, and issues related to engagement with the rated entity.  

Adoption of IOSCO recommendations: Treasury considers there is clear benefit to be gained from improving the transparency of methodologies, governance, and processes of ESG ratings providers. Benefits include the ability to achieve net zero, UK consumer protection, increase UK international competitiveness, and economic growth.

Proportionality: Regulation should be proportionate to the risks that ESG ratings pose.

Promote confidence: A robust ESG ratings market can help support the sustainable growth of the UK economy.


Description of ESG ratings and their provision

Definitions: HM Treasury proposes that an ESG rating in the context of a new regulated activity would cover an assessment regarding one or more environmental, social, and governance factors, whether or not it is labelled as such. Not all ESG ratings use the term “rating”, they can also be called a score, mark, assessment, opinion, solution, etc.

Scope: HM Treasury’s proposed scope excludes data on ESG matters where no assessment is present, meaning raw data that is unprocessed is not included. This scope should also not include data which is only minimally processed, for example by formatting or summarising, so long as there is no separate assessment provided. This proposed exclusion would also encompass estimates and proxy data, such as those which aim to fill gaps in a data set.

The reason for excluding ESG data is that the biggest risk of harm, and the most substantial issues identified by market participants and international authorities, are linked to the presence of an assessment.

Exclusions and territorial scope

Exclusions: HM Treasury proposes that the regulated activity would not involve the provision of ESG ratings by not-for-profit entities.

Territorial scope: HM Treasury proposes to capture, at a minimum, the direct provision of ESG ratings to users in the UK, by both UK firms and overseas firms. This includes direct provision to both institutional and retail users in the UK. This would not capture the provision of ESG ratings by any UK or overseas firm to any user outside the UK.

Market size and concentration: Estimates of the number of providers vary, ranging from over 150 major ESG data providers (some of which also provide ratings) in 2020, to 30 significant ESG ratings and data providers in 2022. Further research suggests that the top three providers made up circa 60% of the market.


Promote competition: Smaller providers may be more disproportionately affected by regulation than larger ones, which can make it harder for them to compete. In addition, they may struggle to meet some of the conditions that regulation imposes as well as its costs, such as paying FCA fees and meeting the FCA’s Threshold Conditions.

Authorisation Opt-in: To foster competition if smaller providers were subject to more proportionate requirements, an opt-in mechanism could also be considered allowing smaller providers to demonstrate to their clients that they are meeting the same standards.

About the author

Simba Mamboininga

Managing Partner

Delivering a 360° service to the asset management industry

Devlin Mambo

We may use cookies to collect data and improve the performance of this website. For further information, please see our Privacy Policy.