HM Treasury consults on ESG rating regulation

The HM Treasury has started a consultation on a potential regulatory regime for ESG ratings providers.

The Treasury has published a paper that sets out proposals for the scope of such a regulatory regime. The consultation opened on 30 March 2023 and will close on 30 June 2023.

In December 202, the Chancellor announced as part of the Edinburgh Reforms that the government wants to improve transparency and promote good conduct in the ESG ratings market. This comes after market participants have continued to raised concerns about ESG ratings such as providers’ methodologies and objectives. The Treasury says that improved transparency of methodologies, governance, and processes of ESG ratings providers could be brought about through regulation. The questions asked in the consultation are:

1. Do you agree that regulation should be introduced for ESG ratings providers?

2. (For ESG ratings providers) If your firm were subject to regulation in line with IOSCO’s recommendations, and aimed at delivering the four key regulatory outcomes, how would this impact your business?

3. Are there any practical challenges arising from overlap between potential regulation for ESG ratings providers and existing regulation?

4. Are there any other practical challenges to introducing such regulation?