Rachel Reeves has recently announced her plans to accelerate the development of new legislation regulating the way in which ESG ratings are formulated and applied in the UK, building upon work started by the previous administration earlier this year. 

The way in which ESG ratings are created and measured is largely an unregulated landscape at the moment. Lack of transparency and clarity is a source of concern given the move towards integrating ESG considerations into investment processes, particularly as the chancellor looks to develop Britain's sustainable finance sector. Following a Treasury consultation on ESG ratings in 2023, the chancellor has committed to bringing forward a bill next year and earmarked the Financial Conduct Authority as the body which will determine the rules of the new regime although a separate watchdog may also be created. The proposals have been cautiously welcomed by early commentators as resolving some confusion in the disparity that can appear in the ratings given by different providers and offering more visibility over how ESG data is collected and measured.

The UK ESG ratings regime will be designed to align with international recommendations and EU legislation although the extent to which an exact mirror effect is achieved remains to be seen. With major legislation such as the Corporate Sustainability Due Diligence Directive coming out of the EU and the UK government focusing on enhancing its own legislation on collecting and reporting sustainability information, the landscape of ESG regulation certainly continues to increase in complexity.