In March 2026, Minerva submitted a formal response to the FCA’s consultation paper CP25/34, which for the first time would bring ESG rating providers within the UK regulatory perimeter. The consultation closed on 31 March, and the Policy Statement due in Q4 2026 will determine whether the UK’s regime strengthens market trust or embeds new sources of inconsistency and friction.
CP25/34 marks a significant shift. Providing ESG ratings would become a regulated activity under FSMA, requiring FCA authorisation and compliance with a bespoke sourcebook covering governance, systems and controls, transparency, conflicts of interest and stakeholder engagement. The authorisation gateway opens in June 2027, with the regime going live on 29 June 2028. The direction of travel is welcome. ESG ratings are widely used in capital allocation, fund construction and stewardship, yet have operated without a dedicated regulatory framework. The calibration choices now being made will shape the market for a generation.
ESG ratings have long sat in an anomalous position: materially influential in capital allocation, yet largely unregulated. They inform fund construction, index design, stewardship decisions and regulatory labelling. The FCA’s own research underscores the scale of the problem: 55% of users cited weaknesses in providers’ systems and controls; 48% raised transparency concerns; 40% identified inadequate governance; and 26% had concerns about conflicts of interest. These are not edge cases; they are structural features of an unregulated market.
Transparency, Materiality, and the Limits of Comparability
The disclosure framework in CP25/34 is detailed: minimum public disclosures covering methodology, data sources, materiality assumptions, AI use and material methodology changes, supplemented by more granular product and individual rating-level disclosures for direct users and rated entities.
The FCA’s transparency proposals ask providers to disclose their materiality assumptions, but without defining what “materiality” means in this context, providers will disclose against different frameworks and users will be no better placed to compare products than they are currently. Two areas require sharper definition. The first is materiality. Single materiality, double materiality and SASB-aligned frameworks can produce fundamentally different scopes of assessment each answering a different question about what the rating is designed to measure.
Requiring disclosure of “main assumptions on financial materiality” as though this is a consistent and comparable standard across the market will not deliver the clarity the FCA seeks. Providers should instead be required to explain, in plain language, how materiality is defined and applied within their specific methodology. The FCA should avoid implying convergence around any single framework: methodological diversity is a feature of the market, not a deficiency.
The second is the definition of “material” methodology changes. Without a clear threshold, providers will interpret the test differently and the comparability the regime is designed to deliver will be undermined from the outset. A change that one provider treats as routine such as a data update, a correction, an incremental adjustment on how a factor is scored, another may treat the same change as requiring formal notification to users and rated entities. At scale, across a market with many authorised providers, this inconsistency means users cannot reliably assess whether the ratings they rely upon have changed in ways that are meaningful to their decisions. We have proposed a functional definition to the FCA. Routine data updates, error corrections and changes that do not affect the overall rating outcome should be explicitly excluded. This matters particularly for smaller providers building compliance processes, clarity here reduces costly over-notification.
On intellectual property, the boundary must be explicit. Transparency about analytical logic, decision rules and assumptions is essential. Disclosure of proprietary datasets or contractually restricted raw data is not. Protecting trade secrets while ensuring accountability requires clarity on where methodology transparency ends and raw data disclosure begins.
A Double Standard? ESG Providers and Sell-Side Research
One of the most significant and underexamined issues in CP25/34 is the regulatory disparity between ESG rating providers and sell-side investment research. Both activities produce analytical assessments that materially influence investment decisions. Both are sold to institutional investors and carry real potential for methodological inconsistency, data quality issues and conflicts of interest. The regulatory treatment proposed for each is strikingly different and not in a way that is easily justified on grounds of market impact or investor protection.
Under the current proposals, ESG rating providers must make detailed public disclosures of their methodology, data sources, AI use, weighting approach and materiality framework. Sell-side research requires only high-level disclosure of the basis of recommendations. ESG providers must disclose data sources, estimation methods and data gaps at the level of each individual rating. Sell-side research has no equivalent requirement. ESG providers must notify rated entities before issuing a first-time rating and document every response or the absence of one. Sell-side analysts are not required to notify the companies they cover before publishing. ESG providers must be specifically authorised for ratings activity. Sell-side research operates under existing MiFID II permissions. And there is no lighter or transitional regime proposed for smaller ESG providers, while the MiFID II framework scales more naturally by firm size and activity.
The most striking of these disparities is pre-publication issuer notification. There is no requirement in FCA or MiFID II rules for sell-side analysts to notify issuers before publishing research. There is no equivalent obligation on credit rating agencies for unsolicited ratings. ESG rating providers, under the current proposals, would be subject to a notification, documentation and engagement regime that has no comparable precedent in any other analytical activity in financial markets.
ESG ratings already attract more public and political scrutiny than most other financial data products. That scrutiny should, if anything, make the case for ensuring the regulatory framework is applied consistently. Instead, CP25/34 proposes standards for ESG providers that demonstrably exceed what is required of functionally similar activities elsewhere in the market with no clear articulation of why this disparity is warranted. This is a question the FCA should answer directly in the Policy Statement.
Independence, Issuer Pressure, and the Pre-Notification Concerns
The stakeholder engagement proposals require providers to notify rated entities before issuing a first-time rating, giving them an opportunity to correct factual data. The intent is reasonable. However, in practice, this mechanism would create three problems the FCA has not explored.
First, the independence risk. Pre-notification creates conditions for issuer pressure that would not be tolerated in other parts of the financial market. The same disparity with sell-side research applies with particular force here: ESG rating providers face a more onerous engagement and documentation regime than any comparable analytical activity, despite both influencing investment decisions in structurally similar ways.
Second, the scalability problem. A provider covering thousands of entities across global markets must identify an appropriate contact for each entity, deliver a notification, and manage or document every response, or the absence of one. This represents a substantial and continuous operational burden. For smaller or specialist providers, it may require dedicated engagement teams that cannot be justified on commercial grounds.
Third, the strategic gaming risk. Mandatory pre-notification creates an incentive for rated entities to raise challenges not because they have identified genuine factual errors, but because the presence of a visible “challenge” window creates leverage. The FCA should confirm explicitly in the final rules that rated entities cannot exercise a de facto veto right, and that non-response or disengagement by a rated entity does not delay publication of the rating, nor should it be implied that a challenge against a disclosure is a finding against the provider.
Minerva’s recommendation: a “reasonable efforts” standard for contact identification; indicative rather than mandatory rigid notice periods; an FCA-managed or industry-wide centralised notification registry to reduce per-provider cost; and for real-time or event-driven ratings, explicit confirmation that simultaneous rather than pre-publication notification is appropriate.
The Data Problem the Regime Cannot Solve Alone
ESG ratings are only as good as the corporate disclosure data on which they are built. That data landscape remains fragmented, inconsistent and frequently incomplete. For providers relying on public corporate disclosures rather than private questionnaires, the quality of underlying data is often outside their control.
Placing regulatory accountability on providers for data accuracy risks creating an expectation they cannot reasonably meet. The FCA’s requirements should be interpreted as demanding robust systems for identifying, flagging and documenting data quality limitations, not guaranteeing accuracy in underlying issuer disclosures that providers cannot independently verify or correct. The UK’s publication of UK SRS S1 and S2 standards in February 2026 is a welcome development, but voluntary adoption is not sufficient. Mandatory UK SRS adoption for in-scope listed companies would be a necessary complement to CP25/34. Regulating providers without improving the raw material they work with addresses part of the problem, but not its root cause.
The UK-EU Divergence
EU Regulation 2024/3005 entered into force in January 2025, with ESMA assuming supervisory responsibility. The UK regime goes live in June 2028, a two-year gap. For providers operating across both markets, the divergences are operational costs, not insignificant outliers.
The most significant differences: the EU requires explicit disclosure of E, S and G factor weightings where a single combined rating is provided, but the UK proposes no equivalent, creating direct inconsistency for users receiving ratings on the same entity universe across both markets. The EU introduced a three-year lighter registration regime for small providers under Article 5 of EU Regulation 2024/3005; the UK has not. ESMA’s finalised regulatory technical standards require physical staff separation between rating and consulting activities, the UK’s process-based approach does not. Providers in both markets must therefore maintain parallel compliance programmes at real cost, a burden falling most heavily on small to mid-sized and specialist providers that both regimes claim to want to protect.
The absence of an E, S and G factor weighting requirement in the UK framework is a specific gap we have raised directly with the FCA. For users relying on both UK and EU-regulated ratings, this inconsistency in the disclosure landscape serves no one. We have recommended the FCA address this in the final rules and publish a compatibility assessment alongside the Policy Statement, a clear mapping of where the two regimes align, where they diverge, and why each difference is necessary. This would provide clarity for providers, enable meaningful comparison by users, and demonstrate that the UK’s approach to international coherence is substantive.
The competitive dimension matters too. A regime more burdensome than the EU’s in key respects, or one that creates unnecessary friction for overseas providers, risks making the UK a less attractive market rather than a more credible one. Guidance on UK physical presence expectations must be published in advance of the June 2027 gateway opening. A framework that is genuinely proportionate, grounded in IOSCO recommendations while preserving the methodological diversity that characterises this market at its best, gives the UK an opportunity to set a standard that other jurisdictions look to. That requires resisting the pull towards mirroring the EU, while also resisting the temptation to compete on regulatory laxity.
Looking Ahead
CP25/34 is a serious attempt to bring credibility and accountability to a market that has long operated without them. We have submitted a formal response and will continue to engage through the process. The success of this regime will be determined by choices still to be made: whether proportionality moves from principle to practice; whether transparency requirements improve genuine understanding rather than producing disclosure documents that satisfy a checklist; whether the regulatory burden placed on ESG providers is calibrated fairly against what is asked of comparable activities in the market; and whether UK-EU divergence is managed actively or allowed to compound.
The consultation closed on 31 March 2026. The Policy Statement due in Q4 of 2026 will shape the market for a generation.