Highlights

• The UK Government has presented the ESG Ratings Order 2025 as well as brought ESG ratings under the purview of the FCA.
• The Order regulates ESG ratings and applies to UK and overseas providers.
• The FCA will consult on rules this year, with the regulation kicking in on 29 June 2028.

MSCI ESG Rating Guide and Company Ratings List

The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 has been brought to Parliament, with an Explanatory Memorandum.

The Financial Conduct Authority (FCA) has welcomed the development and announced plans to consult before year-end on the detailed rules and guidance.

The Order, a watershed moment in the country’s approach to sustainability, helps in shaping a dedicated regulatory framework for ESG ratings.

It will affect firms that issue ESG analysis, scores, or metrics used in investment decisions, even if these are not formally labelled as ratings.

Read More: ESG Performance Explained: Metrics, Frameworks & Measurement

Scope of Regulation

Under the new legislation, the provision of ESG ratings becomes a regulated activity whenever such ratings can influence investment choices. The ESG rating definition, according to the Order, is an assessment with regard to one or more environmental, social, or governance factors, developed using an established method and ranking system. These may be expressed as opinions, scores, or combinations of both.

A firm is considered to be “providing” an ESG rating only if it produces the rating and makes it available. The Order lists examples of rating systems, such as letters, numbers, symbols, colours, or temperature scales, that differentiate the qualities of rated entities. In short, any structured ESG assessment that shapes investment thinking will fall within the scope of this regulation.

Comparison with EU Rules

The UK regime bears similarities to the EU ESG Ratings Regulation but introduces two important differences. First, the UK restricts regulation to ratings likely to influence investment decisions, whereas the EU applies a broader approach. Second, the UK only regulates firms that create and distribute ratings, excluding pure distributors. This provides a more defined perimeter for firms operating in the ESG data and analysis sector.

Also Read: New EU Rules Scale Back Sustainability Reporting for Some Firms

Application to Non-UK Firms

The regulation extends to overseas ESG rating providers whose ratings reach UK customers. Firms based outside the UK that share or sell ESG ratings to UK investors will be subject to this Order. However, there is a narrow exemption for overseas providers that make ratings available to UK users without payment, which in practice may benefit very few commercial entities. This mirrors the EU’s stance on cross-border regulation, though the UK’s boundaries differ slightly.

Exemptions Within the Order

To prevent overlap with other regulations, the Order lists several exclusions. ESG ratings are excluded when issued:

• As part of another FCA-regulated activity, such as investment advice or fund management.
• Within credit ratings, benchmarks, or intra-group assessments not intended for public use.
• For compliance with legal or regulatory obligations.
• By academics, journalists, or charities without payment.
• By public authorities, central banks, or international organisations.

For financial services firms, the most relevant exclusion concerns ESG assessments issued during an FCA-regulated activity. Yet, gaps may arise in cases where firms rely on regulatory exemptions or operate from overseas while serving UK investors.

Timeline and Implementation

The Order will take effect in two phases. In the first phase, the FCA and the Financial Ombudsman Service gain authority to prepare and consult on rules, and to accept authorisation applications. The main commencement date is 29 June 2028, when all firms carrying out ESG rating activities must be authorised.

The FCA intends to align its rules with IOSCO recommendations and deal with aspects such as transparency, governance, systems and controls, and conflicts of interest. Guidance will also be published to help firms determine whether their activities fall within the scope of authorisation.

See Also: Rifts in EU Omnibus: Lawmakers Put Chokehold on Green Rules

Practical Next Steps for Firms

The Order predominantly sets its sights on companies that formally issue ESG ratings. However, many financial institutions—including asset managers, insurers, and investment banks—may also be affected if they produce ESG-based assessments that influence investment decisions. For instance, ESG impact scores, climate risk exposure analyses, or ESG research metrics could all qualify as ratings under this law.

Firms should start preparations by:

• Mapping their ESG activities to assess whether these meet the legal definition of an ESG rating.
• Testing the exclusions for regulated activities, benchmarks, intra-group assessments, proxy advice, and private-use scenarios.
• Aligning UK compliance with the EU ESG Ratings Regulation, given their similar goals but differing scopes.

All ESG rating providers and financial market participants must prepare ahead of the 29 June 2028 implementation date.

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Source: CMS LawNow