The PRI welcomes the Financial Conduct Authority’s (FCA) objectives to make ESG ratings more transparent, reliable and understandable, and supports the direction of travel of the regulation

The PRI welcomes the FCA’s proposed approach to regulation of ESG ratings providers in the UK. Over the past few years, the growth of responsible investment practices has led to a steep increase in demand for ESG information. Many investors rely on corporate reporting, complemented by ESG ratings and data products, to assess portfolio performance and inform voting decisions and engagement practices.

We generally support the FCA’s direction of travel and welcome the FCA’s objectives to make ESG ratings more transparent, reliable and understandable.

The PRI’s key recommendations are for the FCA to:

  • Produce clearer, proportionate guidance on what constitutes a material methodological change related to notifications to rated entities and users.
  • Set out requirements for providers to publicly disclose a minimum suite of information about each ESG rating product-line and provide users with more granular disclosures at a product-line and individual rating level as suggested.
  • Ensure consistency between data points and external frameworks such as UK Sustainability Reporting Standards (SRS), EU ESG ratings regime, the International Captal Markets Association’s (ICMA) Code of Conduct for ESG Ratings and Data Products Providers, and the Sustainability Disclosure Requirements (SDR) regime, to bring about interoperability and alignment with the UK’s sustainable finance framework.
  • Implement scalable requirements for non-profit organisations and investment consultants who are in scope of the regime, to ensure that the regime is proportional.

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