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Britain aims to be world leader in sustainable finance

Finance ministry to propose law next year to regulate ESG raters

Published: Thu 8 Aug 2024, 2:57 PM

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  • Reuters

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Chancellor of the Exchequer Rachel Reeves is keen to address the lack of transparency behind ESG ratings. — Reuters File

Chancellor of the Exchequer Rachel Reeves is keen to address the lack of transparency behind ESG ratings. — Reuters File

Britain said on Thursday it would propose a law next year to regulate raters of company environmental, social and governance (ESG) performance, whose benchmarks help channel billions of dollars into sustainability-focused investment funds.

Currently in the UK, ESG raters are asked to comply with a voluntary code of conduct, seen as a quick fix ahead of possible mandatory rules already in place in the European Union.

Finance Minister Rachel Reeves wants to cement Britain as a world leader in sustainable finance, starting by addressing the lack of transparency behind ESG ratings, the finance ministry said in a statement on Thursday.

The previous Conservative government had opened a public consultation on plans to regulate ratings providers, and promised to regulate the sector.

"Rachel Reeves has asked the Treasury to respond quickly to an industry consultation on a new regulatory regime for ESG rating providers and bring forward legislation next year," the ministry said.

"The new approach will boost growth, help deliver a cleaner economy and ensure that companies in critical sectors like defence are not penalised by opaque ratings," the ministry said.

The law would be aligned with recommendations on ESG ratings from the International Organisation for Securities Commissions (IOSCO), the ministry said.

The European Union earlier this year approved a law to regulate ESG ratings, aligned to the IOSCO recommendations.

S&P Global, Moody's, MSCI, the London Stock Exchange Group and Morningstar's Sustainalytics are among the biggest sellers of the ratings.

Regulators have stepped up rule-making in the ESG area, including mandatory disclosures by companies, to crack down on greenwashing or green credentials being inflated to attract investment.



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