UKSIF response: HM Treasury consultation, Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers

We are supportive of the Treasury’s and FCA’s initiatives exploring new regulatory measures for ESG ratings providers, with ESG ratings used increasingly by investors and financial market participants. This includes as a tool to help inform capital allocation and investment decisions in the economy and to comply with regulatory frameworks across jurisdictions. We expect that the demand in the UK, and internationally, for these types of products will grow markedly in the coming years, and it is absolutely crucial for investors and other users to have full confidence in ESG ratings, including their underlying methodologies.

Above all, we believe that greater transparency and high-quality standards are required in this market, which would bring considerable benefits for both ESG ratings providers and users. There is also a good opportunity for ratings providers and industry associations, such as UKSIF and others, to more effectively inform the users of ratings, and wider stakeholders, of the prominent role of ratings today in financial markets and the wider economy, and how they can be placed to support the transition a more sustainable future.

In Treasury’s upcoming work, we would like to see transparency prioritised as a core, over-arching objective, alongside those areas outlined in the International Organization of Securities Commissions (IOSCO) recommendations paper published in November 2021. This includes effectively addressing conflicts of interest and promoting good governance.

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