{"id":101,"date":"2023-05-15T11:56:36","date_gmt":"2023-05-15T11:56:36","guid":{"rendered":"https:\/\/iqeq.com\/gb\/2023\/05\/15\/fca-considers-new-regulated-activity-for-firms-providing-esg-ratings\/"},"modified":"2024-08-07T14:50:26","modified_gmt":"2024-08-07T14:50:26","slug":"fca-considers-new-regulated-activity-for-firms-providing-esg-ratings","status":"publish","type":"post","link":"https:\/\/iqeq.com\/gb\/insights\/fca-considers-new-regulated-activity-for-firms-providing-esg-ratings\/","title":{"rendered":"FCA considers new regulated activity for firms providing ESG ratings"},"content":{"rendered":"
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By Harry Barnes, Senior Compliance Consultant<\/em><\/p>\n

As the regulation of environmental, social and governance (ESG) investments continues to mature, HM Treasury has <\/strong>announced a consultation<\/strong><\/a> on the creation of a new regulated activity covering the provision of ESG ratings. Here, we highlight the key details of the proposed activity and how firms may be impacted.<\/strong><\/p>\n

ESG front and centre for investors and regulators alike<\/h2>\n

ESG ratings are becoming increasingly influential in investment decision-making. Institutional investors are considering ESG ratings more frequently, and they are becoming embedded into the investment process. This growth has put a spotlight on the provision of ESG ratings, the methodologies used, the lack of transparency and how providers manage conflicts between themselves and the rated entity.<\/p>\n

Regulators have been increasingly focused on ESG investments and claims made by firms about the ESG characteristics of investments. With new climate disclosures<\/a> and anti-greenwashing rules<\/a> coming into effect at the end of next month, it is clear that all firms need to consider the ESG aspects of their business.<\/p>\n

Regulation of ESG ratings providers<\/h2>\n

The new regulated activity would monitor the provision of ESG ratings to be used by UK-based persons in relation to specified investments in the Regulated Activities Order.<\/p>\n

The intention of HM Treasury is to capture ESG ratings across different markets, potentially with a broad territorial scope. This means that ratings providers will have to understand how the ratings they provide are used and who they are used by \u2013 possibly even including indirect users.<\/p>\n

The scope of the new activity captures a wide range of products too, including those currently considered by market participants to be data products. ESG ratings produced by algorithms will also be in scope, as in the eyes of the regulator there is an assessment in the creation of the algorithm, in terms of determining what factors the algorithm will consider and how those factors are weighted.<\/p>\n

Exclusions may apply<\/h2>\n

HM Treasury is consulting on a large number of potential exclusions to the new regulated activity:<\/p>\n