The HM Treasury launches its consultation on the Proposed Rules on March 30 with the aim to gather market participants’ feedback on the upcoming regulatory regime for Environmental, Social and Governance (ESG) ratings providers.

The Proposed Rules seek to address, amongst others, issues related to

• The opacity related to the methodologies used by ESG rating providers

• The approaches used by ESG rating providers, as well as those related to

• Conflicts of interest notably “where an ESG ratings provider also provides advice to the rated entity on how to improve that rating; or scenarios where the dialogue between a rating provider and rated entity could be improved.”

If the proposed regime becomes law, the Financial Conduct Authority will embed the requirements in its rules by taking into account IOSCO recommended key regulatory outcomes - i.e., transparency, good governance, management of conflict of interest and robust systems and controls (read our previous update on IOSCO Report on ESG rating providers here for more information).

The Proposed Rules would apply, at a minimum, to the direct provision of ESG ratings to users in the UK, by both UK firms and non-UK firms.

The consultation will close on 30 June 2023.