FCA to Regulate Green Investment Ratings Providers

In August last year, Rachel Reeves confirmed plans to investigate the regulation of ESG ratings providers. 

This week, the government has finalised legislation to enable the Financial Conduct Authority to regulate Environmentally friendly, Socially responsible and corporate Governance (ESG) ratings agencies.  ‘Green’ investment ratings to you and us.

The UK signed up to the Paris Climate Agreement for action to reduce the impact on climate and stop the Earth warming up.  This has filtered down to larger companies required to have a climate action report within their annual report and accounts, investment fund managers to invest increasingly more in environmentally friendly and socially responsible companies., meaning our investments are ‘greener’ and even us, as financial advisers are required to cover the topic or greener investment with clients.

Greenwashing

Many will have heard the term ‘greenwashing’, where companies are claiming to be ‘greener’ than they actually are.

Inconsistent Ratings

Many fund managers, financial advisers and investors rely on the ‘green’/ESG ratings of funds and companies.  These have been inconsistent with different ratings agencies offering different ratings for the same fund or company.

FCAs’ Own ESG Ratings

It is also proposed that the FCA will also develop its own ratings model, which can only help with consistency and trust.

Comment

Bringing ESG Ratings providers within FCA regulation will hopefully standardise the approach to ESG ratings and hopefully build public trust and confidence in the accuracy of the ratings offered.

We also believe it force ESG ratings providers to be more diligent in their assessment process as well as ‘wheedle out’ greenwashing and system abusers.