How will ESG ratings providers measure up – a pensions perspective

On 1 December 2025, the Financial Conduct Authority (FCA) posted its Consultation Paper CP25/34 titled “ESG (Environmental, Social, Governance) ratings: Proposed approach to regulation” (“the Consultation Paper”). The publication marked the start of a 4 month consultation period on proposed rules aimed at improving “transparency and trust in the ESG ratings market”. It has been awaited since 2023 when the Treasury first consulted on bringing ESG ratings under FCA regulation. Below, we highlight the importance of the Consultation Paper and the key takeaways from the pensions perspective.  

Background – what is the FCA’s proposed ESG ratings regime aiming to achieve?

As a reminder, the sustainable finance market is supported by ESG ratings, which measure the ESG characteristics of companies and products being invested in. Pension scheme trustees and their advisors, as well as investors more widely, use these ratings to inform investment decisions. 

Despite the usage of the ratings, there has been a growing demand for regulation to standardise ESG rating providers. For context, currently there is no official definition of “ESG ratings”, let alone any universal criteria under which any organisations may qualify as an ESG rating providers. Absent any regulatory standardisation, distrust in ESG ratings hinders their effectiveness as investors are understandably hesitant to rely on them.  

The FCA aims to introduce regulatory requirements with which ESG rating providers will be required to comply, including regarding transparency, systems and controls, governance and conflicts of interest, to enhance market integrity, improve consumer protection and support sustainable growth. 

The FCA’s proposed regime is largely built on the International Organisation of Securities Commissions (IOSCO) recommendations from 2021. Working off these recommendations, the FCA aims to tackle the following harms in the market: a lack of transparency in methodologies, independence, quality and reliability of ESG ratings. 

How does the FCA’s proposed approach work in a nutshell?

The FCA proposes to apply a combination of existing “baseline” rules to ESG rating providers that apply to most other FCA-regulated firms and a tailored regime for ESG rating providers specifically. 

Baseline standards

The FCA proposes to extend many of its ‘baseline’ standards in its Handbook to ESG rating providers. These include regulations and standards around financial crime and market abuse, those for the provision of regulated products and prudential requirements.

Tailored ESG Rating Approach:

The FCA plans to divide its tailored rules according to the outcomes it wants to improve. The FCA aims to enhance:

• Transparency - improve transparency within the ESG ratings industry by introducing disclosure requirements i.e. it proposes to introduce minimum disclosure requirements for product lines and individual ratings. The FCA has also published some general expectations around these disclosures, for example they must be written in a format which is clear and easy to understand.
• Governance, systems and controls – introduce bespoke rules in the ESG Sourcebook to cover ESG rating providers. The rules relate to quality control and methodology, data quality and accuracy, record keeping and personal transactions.
• Conflicts of Interest – require providers to take steps to identify conflicts of interest, maintain effective systems and controls, keep records, publish certain information and have a conflicts of interest policy in place.
• Stakeholder engagement, complaints and dispute resolution - introduce tailored rules requiring ESG rating providers to have engagement with stakeholders, a transparent complaints management approach and to publish their approach to engagement alongside their complaints-handling procedure. 

Next steps for the Consultation:

The FCA has established a timeline for how its proposed regime will be implemented.

In the short term, the FCA is inviting comments on the Consultation Paper until 31 March 2026. During this period it will engage with ESG rating providers, users, trade associations and other interested parties. 

The FCA then aims to finalise its rules by Q4 of 2026. This will be followed by a 6-month Pre-gateway support period, which is expected to close in June 2027. Following a 12-month application window, the FCA expects its regime to go live on 29 June 2028. 

Takeaways for pension scheme trustees:

Pension scheme trustees and their advisors should ensure any ESG ratings they rely on are derived from FCA-authorised providers post the new regime going live. In addition, the FCA has stated it still expects users of ESG ratings to carry out their own due diligence when assessing ESG ratings products. 

This is an area for trustees to monitor for developments as the consultation progresses and policy is introduced to make changes to the ESG ratings market. Burges Salmon is well-placed to advise on all aspects of ESG in relation to pension schemes. If you would like to explore this topic further, please contact Kate Granville Smith or your usual Burges Salmon contact.