Greenwashing has become a practice these days where companies exaggerate their ESG initiatives, and the need has come to tighten laws to avert such activities by companies. In the UK, discussions are progressing on whether to regulate or not the ESG raters.

An official from the British finance ministry said that rules may be needed to prevent greenwashing from "completely unregulated" environmental, social, and governance (ESG) ratings used for investing in sustainable assets.

According to Adam Lyons, head of the ministry's green finance branch, greenwashing or unsupported claims about a company's ESG credentials is a severe problem in financial markets.

According to Lyons, the ministry would collaborate with the Financial Conduct Authority (FCA) and raters this year to better understand the challenges faced by the industry and whether they should be brought into the regulatory framework.

Last year, the International Organisation for Securities Regulation (IOSCO) suggested that national securities regulators think about regulating ESG raters, which have become more important as investors want more ESG-related information about companies.

Britain hopes to be the world's first net-zero aligned financial centre with green finance skills. According to the global Taskforce on Climate-related Financial Disclosures, it was the first large economy to make climate-related business disclosures mandatory for more than 1,300 corporations in April (TCFD).

Building on the TCFD, a new International Sustainability Rules Board is creating what it hopes will be the world's first basic sustainability disclosure standards for businesses.

Source: Reuters