Government Regulating ESG Ratings Providers ‘Legitimises’ The Industry, Claim Critics

Signage for HM Treasury in Westminster, London, on Jan. 11, 2018. Kirsty O'Connor/PA Wire

Critics have warned that the government’s announcement to regulate ESG ratings providers in its latest budget means that the controversial practice will be “legitimised.”

In its Spring budget last week, the Conservative government said that it will regulate providers of Environmental, Social and Governance (ESG) ratings to users within the UK by bringing them into the regulatory perimeter of the Financial Conduct Authority.

The proposals were first put forward in last March 2023 as part of the government’s green finance strategy.

ESG investing is used to screen investments based on corporate policies and to encourage companies to promote “sustainable practices” such as reducing carbon emissions.

They have been gaining traction in recent years as companies and governments see them as having a positive impact.

However, some argue that ESG policies are being used as a cover to restrict the ability of certain groups to access credit, silence dissenting voices, and stifle economic growth.

Such rating agencies, research firms, and data providers, such as Deloitte, Moody’s and many more, each have their own methodologies and criteria for assessing the environmental, social, and governance performance of companies and investment products.

Last November, Deloitte said that it is “a largely unregulated sector that wields broad influence over trillions of pounds worth of sustainable investments” and that “at present there is little oversight on how organisations create ESG criteria and rate other companies against them.”

Rewire the Entire Global Financial System for Net Zero

Rupert Darwall, senior fellow of the RealClear Foundation and author, told The Epoch Times that “what this is really about is about driving capital away from oil and gas, towards wind and renewables and so forth.”

The net zero policy critic, a former special adviser to the chancellor of the exchequer in the 1990s, referred to Prime Minister Rishi Sunak’s speech at COP26 in 2022.

Mr. Sunak, Chancellor at the time, said that “investors need to have as much clarity and confidence in the climate impact of their investments as they do in the traditional financial metrics of profit and loss” and that he wanted to “rewire the entire global financial system for net zero” and that “assets worth over $130 trillion of capital” are to be deployed.

“This is not about enabling private investors to make higher returns on their savings and on their pension and so forth,” said Mr. Darwall.

“It’s about basically socialising savings for public policy ends, essentially, net zero,” he said.

“This is all about pushing capital toward not to where it’s going to have the highest risk-adjusted return, but where it’s going to reduce co2 emissions,” he added.

‘Basically, ESG is Falling Apart’

He noted, however, that on the other side of the Atlantic, “basically, ESG is falling apart” due to pushback.

“There is a big pushback from Republican states and Republican attorney generals, and various state laws have been passed, cracking down on ESG. And one of the really big issues has been anti trust and that’s why recently State Street and JP Morgan have been quitting the Climate Action 100 Group,” he said.

Last month, the two major asset managers dropped out of the ESG-aligned Climate Action 100+ pact, an alliance of roughly 700 institutional investors with $68 trillion under management that was established in 2017 under U.N. guidance.

In their letter to asset managers, the Republican attorneys general said that “potential unlawful coordination appears throughout Climate Action 100+’s documents,” while calling the group’s actions a “transparent attempt to push policies through the financial system that cannot be achieved at the ballot box.”

However, Mr. Darwall said that unlike the United States, there is “complete consensus between Labour and Conservative on this” in the UK.

Impingement on British citizenry freedoms

Francis Hunt, trader and founder of The Market Sniper told The Epoch Times that he believed the new regulations mean that ESG is now “formalised” by authorities.

He warned that it is “very much the legitisimatistion and the institutionalisation of the industry.”

He said that “it’s not just happening at the UK level, but at a global level.”

“Actual freedom of movement will be greatly curtailed with ESG being entrenched and this is further proof,” he said. 

“It is going to work into the impingement on British citizenry freedoms in terms of freedom of movement access,” he added.

He also said this top-down policy could result in carbon footprint allocations and limits to the average citizen.

“For example, you’ve had three steaks in the last month, and this is going to lead to greater taxation, tax rates etc.”

He said those who can pay will pay, but warned those who can’t “will be crowded out of things that they used to take as everyday rights and freedoms.”

He warned that individuals might have to resort to tech-driven virtual versions of past everyday experiences, like overseas holidays.

An FCA spokesman told The Epoch Times by email: “We welcome the government’s decision. We will work to develop a proportionate and effective regulatory regime with a focus on transparency, good governance, managing conflicts of interest, and proper systems and controls.

“Having an effective, transparent market for ESG ratings will improve credibility and trust, support the green finance market and competitiveness of the UK economy.”

The Epoch Times contacted The Treasury for a response.