The Financial Conduct Authority (FCA) has set out proposals to ensure environmental, social, and governance (ESG) ratings are transparent, reliable, and comparable, a move expected to deliver around £500 million in net benefits over the next decade.
ESG ratings increasingly influence insurers’ underwriting, investment strategies, and risk reporting, with global spending on ESG data projected to reach $2.2 billion in 2025.
The proposals follow the government’s decision to bring ESG ratings under the FCA’s remit, supported by 95% of consultation respondents. They aim to address industry concerns about the methodology and transparency of ratings, which can affect insurers’ ability to assess climate, social, and governance risks across portfolios.
The FCA’s proposals focus on four areas: improving transparency to allow insurers and investors to compare ratings more easily; strengthening governance, systems, and controls to ensure robust oversight and consistent quality; identifying and managing conflicts of interest; and setting clear expectations for stakeholder engagement and complaints handling. Existing FCA rules would also apply to new firms entering the regulator’s remit, with requirements proportionate to business size and risk exposure.
For insurers, reliable ESG ratings are critical. They underpin underwriting decisions for property, casualty, and specialty lines exposed to environmental or social risks. Accurate ratings also support investment strategies, helping insurers assess portfolio risk in line with sustainable finance obligations and regulatory reporting requirements. Transparent ratings facilitate more effective pricing, capital allocation, and scenario testing for climate-related or socially sensitive exposures.
Sacha Sadan (pictured), director of sustainable finance at the FCA, said the rules would give insurers and investors greater trust in ESG data, reinforcing the UK’s position as a global sustainable finance hub. The proposals draw on existing industry codes and International Organisation of Securities Commissions (IOSCO) recommendations, promoting consistency and international competitiveness.
The consultation is open until March 31, 2026, with final rules expected in Q4 2026 and the regime due to take effect in June 2028.
Support will be provided for firms seeking FCA authorisation as ESG rating providers, helping insurers and investors integrate high-quality, comparable ESG information into risk management and underwriting processes.
