The Financial Conduct Authority has proposed a new approach to ESG ratings, in an attempt to standardise and govern institutional investors approaches to ESG,
The problem it's trying to solve is real. Two agencies can rate the same company and reach completely different conclusions, using different data, different methodologies, and different definitions of what "ethical" even means — with no obligation to explain why. Over half of institutional users of ESG ratings have raised concerns about how they're built. That's not a minor data quality issue. It's a structural failure at the heart of ethical investing.
The FCA's proposals focus on four areas: forcing rating agencies to publicly disclose their methodologies so scores can actually be compared; introducing data quality controls to prevent outdated or inaccurate information driving investment decisions; banning firms from rating companies they are simultaneously advising; and giving rated companies the right to see their data, correct factual errors, and raise formal complaints.
For institutional investors — asset managers, pension funds, large platforms — this is genuinely significant. Better governed ratings mean more defensible investment decisions and clearer accountability when things go wrong.
For retail investors, the picture is more complicated. The FCA explicitly decided not to extend Consumer Duty protections to ESG ratings, on the basis that they are a wholesale product. Retail investors access ESG scores indirectly, filtered through funds and financial products.
There is no direct transparency, no complaints process, and no right of reply for ordinary people trying to understand where their money actually goes.
Cleaner data at the institutional level is a step forward. But it doesn't automatically translate into better tools or clearer choices for everyday investors — unless someone builds the bridge.
Final rules expected Q4 2026. New regime live June 2028.
