The UK Government has formally taken the next step toward regulating the fast-growing ESG ratings market. The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 (“the Order”) has been laid before Parliament, with the Financial Conduct Authority (FCA) confirming it will consult on detailed rules and guidance before the end of 2025.

This marks a major milestone in the UK’s development of a comprehensive ESG ratings regime—one that will bring greater oversight, accountability, and transparency to how environmental, social, and governance (ESG) scores are produced and used in investment decisions.

What Will Be Regulated

The Order adds “providing an ESG rating” to the list of regulated activities under UK financial services law—but only where the rating is likely to influence an investment decision.

An ESG rating is broadly defined as an assessment of environmental, social, or governance factors, created through an established methodology and ranking system, and expressed as an opinion, score, or rating category (e.g., a letter grade, number, or color).

To fall within scope, a firm must both produce and make available the rating—meaning distributors or republishers of ESG ratings are generally outside the perimeter.

This approach mirrors the EU ESG Ratings Regulation, but with two key distinctions:

• The UK scope only applies when the rating could influence investment decisions.

• Only firms that both produce and distribute ratings are regulated, carving out pure distributors more clearly than in the EU model.

Who Is Caught—and Who Isn’t

The regime captures both:

• UK-based ESG rating providers serving any clients globally, and

• Overseas providers whose ratings are made available to UK customers.

A narrow exemption exists for foreign providers offering ratings free of charge, but this will rarely apply to commercial firms.

The Order also sets out broad exclusions to avoid overlapping regulation. ESG ratings will not be regulated where they are:

• Produced as part of another FCA-regulated activity (e.g., portfolio management or investment advice);

• Used in the course of creating credit ratings or benchmarks already regulated elsewhere;

• Developed solely for internal use, accreditation, certification, or legal compliance;

• Issued by journalists, academics, or charities on a non-commercial basis; or

• Produced by public authorities or central banks.

For most financial firms, the key carve-out will be ESG ratings produced as part of another regulated service—such as ESG scores within research or investment advice. However, grey areas remain, particularly for overseas entities serving UK clients without explicit UK authorization.

Timeline and FCA Next Steps

The regulation will be introduced in two phases:

1. Initial commencement – The FCA and the Financial Ombudsman Service gain the power to consult and prepare rules, and to accept authorisation applications.

2. Full commencement – 29 June 2028 – Firms must be authorised to provide ESG ratings.

The FCA plans to consult before year-end on a rulebook aligned with IOSCO recommendations, covering transparency, governance, systems and controls, and conflict-of-interest management. It will also issue guidance to help firms determine whether their ESG activities fall within scope.

What Firms Should Do Now

While full regulation is three years away, firms should begin readiness work immediately. The FCA will expect firms to understand their exposure, and those producing ESG assessments that could influence investment decisions may need to apply for authorization.

Recommended next steps:

1. Map and assess your activities. Identify all ESG analyses, metrics, or scores across your business—especially those not explicitly labelled as “ratings”—and test them against the statutory definition.

2. Determine whether you “produce and make available.” Understand whether you are only distributing third-party ratings or generating your own structured outputs.

3. Review applicable exclusions. Test whether your ESG products qualify for exemptions (e.g., as part of a regulated investment service or internal reporting).

4. Align globally. Coordinate preparations for both the UK and EU ESG Ratings Regulations, ensuring your policies, methodologies, and disclosures are consistent but adapted for differing scopes.

5. Monitor FCA consultation and rulemaking. The consultation expected later this year will clarify authorization pathways and the practical compliance expectations for 2028.

Executive Takeaway

The UK’s ESG Ratings Order 2025 is a turning point: it formally recognizes ESG ratings as financial products with regulatory implications. While designed to improve transparency and trust in the ESG data ecosystem, it also creates compliance exposure for firms producing or publishing any ESG-related scores.

Firms should treat this as an early warning—begin mapping, testing, and documenting ESG-related outputs now—to avoid being unexpectedly classified as an ESG rating provider when the regime takes effect in June 2028.