Britain announced on Thursday that it plans to introduce legislation next year to oversee the assessment of company environmental, social, and governance (ESG) performance. These assessments are crucial as they guide the flow of billions of dollars into sustainable investment funds. Presently, UK ESG raters are expected to adhere to a voluntary code of conduct, which is viewed as a temporary solution until potentially more stringent rules, similar to those in the European Union, are implemented.
Finance Minister Rachel Reeves aims to establish Britain as a global leader in sustainable finance, beginning with tackling the opacity in ESG ratings, according to a statement from the finance ministry. The previous Conservative government had initiated a public consultation on regulating rating providers and had pledged to regulate the sector. "Rachel Reeves has directed the Treasury to swiftly respond to an industry consultation on a new regulatory framework for ESG rating providers and to advance legislation next year," the ministry stated.
This new regulatory approach is expected to stimulate economic growth, facilitate a cleaner economy, and prevent companies in vital sectors such as defense from being unfairly judged by unclear ratings, the ministry added. The proposed law will be in line with recommendations from the International Organisation for Securities Commissions (IOSCO). Earlier this year, the European Union enacted a law to regulate ESG ratings, also based on IOSCO recommendations. Major providers of these ratings include S&P Global, Moody's, MSCI, the London Stock Exchange Group, and Morningstar's Sustainalytics. Regulators have intensified their rule-making in the ESG field, including mandatory disclosures by companies, to combat greenwashing or the exaggeration of green credentials to attract investment.
