UK ESG Ratings Providers – Near Final Legislation (November 2025)

UK government publishes updated draft legislation on the regulation of ESG ratings providers

On 29 October 2025, the UK government published an updated draft Statutory Instrument (SI) on the regulation of ESG ratings providers, the Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 (the Draft Order). The Financial Conduct Authority (FCA) has also announced that once the UK government finalises this legislation, the FCA intends to consult on proposals for the future regulatory regime before the end of 2025. Whilst there are limited details on the proposed rules, the FCA has announced that it intends to focus on four key areas: (i) transparency; (ii) governance; (iii) systems and controls; and (iv) conflicts of interest.

Regulating the “provision of ESG ratings”

The Draft Order would bring the “provision of ESG ratings” within the UK regulatory perimeter by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order (the RAO). In particular, a new Article 63U RAO would specify “providing an ESG rating” as a regulated activity where that rating is “likely to influence a decision to make a [specified] investment.”

As with any other regulated activity in the RAO, a person carrying on such regulated activity in the UK (as to which, see Territorial scope and overseas provision below) would need to be an authorised person (that is, authorised by the FCA), or otherwise exempt, to do so.

For the purposes of the regulated activity of “providing an ESG rating,” the Draft Order clarifies that the following definitions apply:

• A person is not considered as “providing” an ESG rating unless the person both (i) “produces” the rating and (ii) “makes it available.”
• “Making available” can include, but is not limited to, “issuing the rating to another person in hard-copy or electronic form or publishing on a website or other digital medium.”

In respect of the term “likely to influence a decision to make a [specified] investment”, the Draft Order provides the following examples:

• “Make” is defined broadly to include, among other things, “buying, selling, subscribing for, exchanging, redeeming, holding or underwriting the investment.”  
• “Specified investments” include investments specified in Part 3 of the RAO, which include for example, shares, debt securities, derivatives, and units in collective investment schemes.

Definition of “ESG rating”

A new Article 63Z7 RAO will define an “ESG rating” as:

“an assessment regarding one or more ESG factors, which

The Draft Order elaborates on the definition of “rating categories” — “rating category” includes, but is not limited to, “a variable or division within a system, such as a letter, number, symbol, colour or temperature, that provides a relative measure to distinguish one or more characteristics of various rated items.”

Providers of pure raw data or research that do not meet this definition may fall outside scope, but boundary cases will be fact‑specific and may require FCA perimeter guidance.

Territorial scope and overseas provision

As it currently stands, the Draft Order would have extraterritorial effect. “Providing” in relation to an ESG rating is defined also to include circumstances where an overseas person (e.g., a U.S. ESG ratings provider) produces ESG ratings that they “could reasonably expect to be made available” to a person “located in the UK.”

“Located in the UK” is defined broadly as including (i) persons with a registered or head office in the UK; (ii) persons that provide or receive ESG ratings through an establishment maintained by it in the UK; or (iii) in relation to a natural person, a person who is able to satisfy the relevant statutory residency test at the time that the ESG rating is made available to them.

Whilst there is an exemption for overseas providers, it is fairly limited — the exemption applies only where the ESG rating is made available to UK persons with “no remuneration of any kind”. In other words, if the overseas provider’s ESG ratings are remunerated in any way, the overseas provider will generally require UK authorisation.

Exclusions

The Draft Order proposes a number of targeted exclusions. For businesses that engage in ESG rating activities, the exclusions are generally limited in terms of their applicability. For example, exclusions may be available where ratings are provided in relation to unregulated benchmarks and credit ratings that are excluded under the UK Benchmarks Regulation; ancillary and non‑commercial provision by journalists, academics, or charities subject to certain conditions; or provision by public authorities, central banks, and international organisations.

However, the following exclusions are notable for their wider potential use case:

• Regulated products and services exclusion. This exclusion may apply where the ESG rating is provided in the course of carrying out other types of regulated products and services.
  
  For example, this includes other regulated activities under the Financial Services and Markets Act 2000. Investment managers may wish to note that this exclusion also applies for activities in relation to an alternative investment fund that is marketed in the UK and managed by a non-UK alternative investment fund manager (under Regulation 59 of the UK Alternative Investment Fund Managers Regulations 2013).
• Intra-group ratings exclusions. This exclusion may apply where the ESG rating is provided to another member of the same corporate group as to the provider and is not expected to be shared externally.
• Private use exclusion. This exclusion may apply where the ESG rating is provided under a contract relating solely to the counterparty and is not expected to be shared externally.

Comparison with the EU ESG Ratings Regulation

Although the Draft Order remains subject to change, a few observable comparisons can be made between the proposed regulation of ESG providers in the UK and the equivalent legislative framework in the EU under the ESG Ratings Regulation (Regulation (EU) 2024/3005).

For example, the EU ESG Rating Regulation’s territorial scope hinges on “operating in the Union.” The framework makes clear that non-EU ESG ratings providers established outside of the EU should be considered to be “operating in the EU” only when they “issue and distribute” their ESG ratings by subscription or other contractual relationships to the same entities as ESG ratings providers established in the Union. By contrast, the UK’s Draft Order appears to have a wider scope: a non-UK ESG rating provider could be deemed to be “providing” to a UK person and caught by the framework, where it could “reasonably expect” the rating to be made available to that UK person.

Moreover, market access for ratings issued in overseas jurisdictions may vary between the two regimes. The EU ESG Rating Regulation provides three access routes for third-country providers: (i) equivalence; (ii) endorsement; and (iii) recognition. However, the UK Draft Order currently does not provide any such provisions for non-UK providers. The UK’s approach remains to be seen — the UK government’s consultation response on the regulatory regime for ESG ratings providers stated that access routes for overseas providers will be explored in the FCA’s consultation on the ESG Ratings regulatory regime.

Furthermore, there are notable differences between the scope and definition of “ESG rating” under the two regimes. Accordingly, providers of ESG ratings will need to carefully assess the applicability of the two regimes to identify which entities and products are captured by each regime and the different obligations that apply. Helpfully, the FCA has announced that it will also be producing guidance to help firms assess whether their activities will fall under regulation and require their authorisation.

Timeline

The UK government is expected to publish the final legislation, and the FCA is expected to consult on its proposed rules, by the end of 2025.

In terms of the timing and sequencing of the legislation, there are two stages. At the first stage, part of the Draft Order would commence the day after the order is made but only to enable the FCA and the Financial Ombudsman Service to consult on and make rules and give guidance. At the second stage, the authorisation requirements will apply from 29 June 2028. The Draft Order also enables firms to apply for Part 4A permission to become FCA authorised ahead of that date. Firms should therefore plan their authorisation strategies and governance uplifts in parallel with the FCA’s 2025 consultation window.