ESG ratings providers: FCA consultation paper and high-level compare of UK vs. EU regimes

63Z7

“ESG factor” means an environmental, social or governance factor;

“ESG rating” means an assessment regarding one or more ESG factors, which -

(a) is produced in the form of an opinion, a score or a combination of both, where -

(i) “score” means a measure derived from data and a pre-established statistical or algorithmic system or model, without additional substantial analytical input from an analyst, and

(ii) “opinion” means an assessment involving substantial analytical input from an analyst, and

(b) is prepared using an established methodology and a defined ranking system of rating categories, whether or not it is characterised as an ESG rating;” “‘providing’, in relation to an ESG rating, means producing it and making it available, and a person (“P”) – (a) does not provide an ESG rating unless they both produce it and make it available, … ”

Article 3 (definitions)

“(1) ‘ESG rating’ means an opinion or a score, or a combination of both, regarding a rated item’s profile or characteristics with regard to environmental, social and human rights, or governance factors, or regarding a rated item’s exposure to risks or impact on environmental, social and human rights, or governance factors, that is based on both an established methodology and a defined ranking system of rating categories, irrespective of whether such ESG rating is labelled as ‘ESG rating’, ‘ESG opinion’ or ‘ESG score’;”

“(2) ‘ESG opinion’ means an ESG assessment that is based on a rule-based methodology and defined ranking system of rating categories, involving directly a rating analyst in the rating process;”

“(3) ‘ESG score’ means an ESG measure derived from data, using a rule-based methodology, and based only on a pre-established statistical or algorithmic system or model, without any additional substantial analytical input from a rating analyst;”

“(4) ‘ESG rating provider’ means a legal person whose activities include the issuance, and the publication or distribution, of ESG ratings on a professional basis;”

“(7) ‘rated item’ means a legal person, a financial instrument, a financial product, a public authority or a body governed by public law which is explicitly or implicitly rated in the ESG rating, irrespective of whether such rating has been requested and irrespective of whether the legal person, public authority or body governed by public law has provided information for that ESG rating;”

“63U. (1) Unless paragraph (2) applies, providing an ESG rating is a specified kind of activity, where that rating is likely to influence a decision to make an investment specified in Part 3 [e.g. shares, bonds, funds etc].

(2) This paragraph applies where the person providing an ESG rating could not reasonably have expected it to influence a decision to make an investment specified in Part 3.

(3) For the purposes of paragraph (1), it is immaterial whether the ESG rating is solicited or unsolicited.

(4) In paragraphs (1) and (2), “make”, in relation to an investment specified in Part 3, has the meaning given in article 63Z7.”

Article 4 Requirements to operate in the Union Any legal person that wishes to operate as an ESG rating provider in the Union shall be subject to one of the following:

(a) an authorisation issued by ESMA as referred to in Article 6;

(b) an equivalence decision as referred to in Article 10 and fulfilment of the conditions referred to in that Article; (c) an authorisation for endorsement as referred to in Article 11; (d) a recognition as referred to in Article 12.

• Applies from June 29, 2028⁴

• Applies from July 2, 202

• The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 was made on December 15, 2025
• FCA published CP 25/34 with its draft rules for ESG ratings providers —December 1, 2025
• Consultation closes—March 31, 2025
• FCA to publish a policy statement and rules in final form—Q4 2026
• Pre-gateway support period for firms that wish to apply for authorisation—late 2026 to June 2027
• FCA authorisation gateway to open—June 2027

• ESG Rating Regulation dated November 27, 2024
• Published in the Official Journal—December 12, 2024
• Entered into force—January 2, 2025

• FCA

• ESMA

• Transitional relief is available for an existing ESG ratings provider that has made an application for authorisation by a deadline to be determined by the FCA, where the application has not been determined in time. Subject to conditions, the firm can continue to make pre-existing ESG ratings available, but no new ones. The transitional relief will last for one year.

• Existing ESG ratings providers⁵ already operating in the EU on January 2, 2025 (i.e., when the regulation came into force) must notify ESMA by August 2, 2026 if they want to apply for authorisation or recognition. In general terms, these firms are listed in a register and able to continue to operate until their application is approved or denied. But they must submit an application for authorisation by November 2, 2026.
• Temporary light-touch requirements for small EU ESG ratings providers. They must notify ESMA of their intention to operate and have been registered by ESMA. They are then subject to some (not all) of the regime. The regime will apply in full to them three years after their registration and they must apply for authorisation within six months of that date.

Under new Articles 63V to 63Z6 of the RAO, the following apply, subject to conditions:⁶

• Firms authorised to conduct another regulated activity (and certain other prescribed activities) are given a limited exclusion where they create an ESG rating in the course of carrying on that other activity.
• An exclusion applies to a firm providing an ESG rating in the course of providing a benchmark excluded under certain provisions from the UK Benchmarks Regulations.
• An exclusion applies to a firm providing an ESG rating in the course of providing a credit rating, score etc excluded under certain provisions from the post Brexit UK credit ratings regime.
• An exclusion applies to an ESG ratings provider that provides a rating to another member of its group where (1) it does not reasonably expect the rating to be made available to third parties or (2) if otherwise, it reasonably expects such availability will fall within the exclusion in the first bullet above
• Broadly speaking, an exclusion applies where a rating is provided about a subject, having been commissioned by that subject for its private use.
• An exclusion applies for journalists, academics and charities, subject to conditions.
• An exclusion is provided for an ESG rating provided by a public authority, central bank or certain international organisations—e.g., where the UK is a member.
• An exclusion applies in respect of ratings developed exclusively for accreditation or certification processes, where the purpose of that accreditation or certification is not to influence a decision to make a specified investment.
• An exclusion applies in respect of a rating provided solely for the purpose of complying with a regulatory or legal requirement (e.g., regulatory reporting).
• An exclusion applies to proxy adviser services.
• An exclusion applies to a firm that falls within the overseas person exclusion in the RAO.

Under Article 2(2) of the ESG ratings regulation:

• Private ESG ratings not intended for public disclosure or for distribution. ESG ratings issued by regulated EU financial undertakings used exclusively for internal purposes or for providing in-house or intra group financial services and products.
• ESG ratings issued by regulated EU financial undertakings in the EU that are incorporated in a product or a service (where those products or services are already regulated under EU law) and that are disclosed to a third-party.⁷
• ESG ratings issued by ESG rating providers established outside the EU that are not authorised or recognised under the regulation and that meet the following conditions: (1) The ESG rating is distributed at the own exclusive initiative⁸ of the user of the ESG rating established in the EU without any prior contact, solicitation, promotion, advertisement or any other initiative by the ESG rating provider, or by any third party on behalf of the provider. (2) There is no substitute for the ratings offered by any ESG rating provider authorised under the regulation.
• The publication or distribution of data on environmental, social and human rights, and governance factors.
• Credit ratings and ESG-related scores/assessments produced or published as part of the methodology for a credit rating or as an input/output of a creditworthiness assessment.
• Products or services that incorporate an element of an ESG rating, including investment research as defined in MiFID.
• External reviews of European Green Bonds.
• External reviews or second-party opinions on bonds, loans, etc marketed as environmentally sustainable, sustainability-linked etc, subject to conditions.
• ESG ratings issued by EU institutions etc, member states, etc provided the ratings are not published or distributed for commercial purposes.
• ESG ratings issued by an authorised ESG rating provider where the ratings are published or distributed by a third party.
• Certain mandatory disclosures under the EU Taxonomy Regulation or SFDR.
• ESG ratings developed exclusively for accreditation or certification processes that do not target investment analysis, financial analysis, or investment or financial decision-making.
• Labelling activities, provided the label granted to the relevant entities, product etc does not involve the disclosure of an ESG rating.
• ESG ratings published or distributed by non-profit organisations for non-commercial purposes.

(1) New PERG 18.5 Q14 (proposed by CP 25/34) (see also Articles 72(5G) and (5H) of the RAO):

“18.5 Territorial scope Q14. What is the territorial scope of the regime? A provider needs FCA authorisation to provide ESG ratings if: (1) it is a firm ‘located in the United Kingdom’ (whether it provides the ESG rating to a person who is in the UK or overseas); or (2) it is located overseas but provides an ESG rating to a person ‘located in the United Kingdom’ and is remunerated for it (by any person).”⁹

(2) New PERG 18.5 Q15 (proposed by CP 25/34) (see also Articles 63Z7 in the RAO, definition of “providing”):

“Q15. I am distributing my ratings to UK users via an overseas intermediary, so I am producing the rating but not making it available myself to anyone in the UK, am I out of scope? No. Where a provider makes a rating available to one or more third parties outside the UK but reasonably expects it to be provided to a person in the UK, the activity is in scope of regulation (see the definition of ‘providing’ in article 63Z7 Regulated Activities Order).”

Article 63Z7:

““providing”, in relation to an ESG rating, means producing it and making it available, and a person (“P”) - (a) does not provide an ESG rating unless they both produce it and make it available, and (b) is to be regarded as providing an ESG rating to a person located in the United Kingdom (“R”) where P – (i) is not located in the United Kingdom, and (ii) produces and makes available an ESG rating to a person other than R in circumstances where P could reasonably expect the rating to be made available to R;”.

The EU regime provides three potential routes for a third-country firm:

(1) Equivalence—The Commission must have decided the third country is equivalent in terms of regulation and supervision, subject to conditions—e.g., the firm must notify ESMA and be listed on a register ESMA would maintain.

(2) Endorsement—A duly authorised ESG ratings provider in the same group endorses the rating, subject to extensive conditions—e.g., verification, monitoring etc.

(3) Recognition—A small EG ratings provider in a third country for which there is no equivalence decision may provide ESG ratings to regulated EU financial undertakings, subject to obtaining recognition from ESMA.