LONDON, Aug 8 (Reuters) - Britain said on Thursday it

would propose a law next year to regulate raters of company

environmental, social and governance (ESG) performance, whose

benchmarks help channel billions of dollars into

sustainability-focused investment funds.

Currently in the UK, ESG raters are asked to comply with a

voluntary code of conduct, seen as a quick fix ahead of possible

mandatory rules already in place in the European Union.

Finance Minister Rachel Reeves wants to cement Britain as a

world leader in sustainable finance, starting by addressing the

lack of transparency behind ESG ratings, the finance ministry

said in a statement on Thursday.

The previous Conservative government had opened a public

consultation on plans to regulate ratings providers, and

promised to regulate the sector.

"Rachel Reeves has asked the Treasury to respond quickly to

an industry consultation on a new regulatory regime for ESG

rating providers and bring forward legislation next year," the

ministry said.

"The new approach will boost growth, help deliver a cleaner

economy and ensure that companies in critical sectors like

defence are not penalised by opaque ratings," the ministry said.

The law would be aligned with recommendations on ESG ratings

from the International Organisation for Securities Commissions

(IOSCO), the ministry said.

The European Union earlier this year approved a law to

regulate ESG ratings, aligned to the IOSCO recommendations.

S&P Global ( SPGI ), Moody's, MSCI ( MSCI ), the

London Stock Exchange Group ( LDNXF ) and Morningstar's ( MORN )

Sustainalytics are among the biggest sellers of the ratings.

Regulators have stepped up rule-making in the ESG area,

including mandatory disclosures by companies, to crack down on

greenwashing or green credentials being inflated to attract

investment.