Obtaining funding for the best, most innovative and most sustainable companies, thus unlocking the country’s potential and countering the lack of transparency in the ESG rating sector by specialized agencies. This is the goal of the bill on which the Labor government led by Keir Starmer is working according to Financial Times.
This was announced by the Chancellor of the Exchequer, Rachel Reeves, during a visit to Toronto when she met with the leaders of Canada’s pension funds.
What’s new in the new year
Proposed legislation to regulate environmental, social and governance performance assessment agencies is expected to be introduced in early 2025. The text is expected to bring UK legislation in line with international recommendations in this area starting with harmonization against the renewed regulatory framework on which the European Union is working.
The bill announced by Reeves is not new: his predecessor Jeremy Hunt had already been working on the issue since spring 2023, but the project stalled due to the early elections decided by Prime Minister Rishi Sunak and subsequent defeat at the polls.
However, the new text will be a tangible sign of the new course that is attempting to soften the distance between UK and the EU after the years of Conservative governments following Brexit. Anyway, the law is meant to fill a glaring gap. Indeed, the United Kingdom has no system of control over the rules used by rating agencies to construct ESG criteria and thus to rate companies.
Fighting opacity
The problem is significant since their ratings influence the choice of sustainable investment funds whether or not to include certain stocks and bonds in their portfolios. According to the Labor minister, providing clarity will help the growth of green finance in the country and ward off the risk of disinvestment caused by opacity in the system.
The rules of the new regime will have to be set by the Financial Conduct Authority, the main financial regulatory body across the Channel. However, it is not ruled out that it will be joined by an additional supervisory body tasked with verifying the proper implementation of the new rules.
