PensionBee has welcomed the Financial Conduct Authority’s (FCA) plans to introduce regulation for ESG ratings providers, calling the move a long-overdue step toward greater transparency and accountability.
In its response to the regulator’s consultation, the online retirement savings provider supported the introduction of a proportionate and internationally aligned framework, while urging the FCA to go further to strengthen transparency and reduce burdens on smaller companies.
PensionBee said ESG ratings play an increasingly influential role in shaping how companies are assessed by investors and the wider market, making it critical that ratings are accurate, transparent and free from conflicts of interest.
However, the company highlighted several weaknesses in the current ESG ratings ecosystem that it believes regulation must address. These include limited transparency around rating methodologies, potential conflicts of interest where providers also offer consulting services to rated companies, heavy data-reporting requirements for smaller firms and the lack of a clear process for companies to challenge or correct ratings.
In its submission, PensionBee recommended requiring ESG ratings providers to disclose factual corrections and explain how those changes affect ratings, while also introducing clearer disclosure of commercial relationships between ratings providers and rated entities.
The company also called for more proportionate ESG data collection requirements, including greater standardisation and pre-populated reporting frameworks to reduce the burden on smaller companies. It further suggested broadening the definition of complaints to include reputational harm and introducing a clear escalation pathway to the FCA when disputes arise.
Clare Reilly, Chief Investment Solutions Officer at PensionBee, said, “ESG ratings play an increasingly influential role in how companies are understood and assessed, yet the current market lacks the transparency and consistency that both investors and rated entities need. We welcome the FCA’s proposals as an important step towards building a more robust and credible framework, but it is essential that the final rules go further if they are to address the issues that persist today.”
She added that improved visibility into rating methodologies and clearer disclosure of commercial relationships between raters and companies would be critical to maintaining the independence and credibility of ESG ratings.
PensionBee also emphasised the need for regulation that reflects the realities faced by smaller listed companies, arguing that current ESG data requests are often designed for large corporations and place disproportionate operational pressure on smaller businesses.
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