The Securities and Exchange Board of India (SEBI) has introduced a set of clarificatory and procedural modifications to support and regulate ESG Rating Providers (ERPs), following stakeholder feedback and industry consultation. These updates build upon the foundational framework set out in the Master Circular issued on May 16, 2024, and aim to foster transparency, operational clarity, and regulatory alignment for ERPs across business models.
1. Expanded Norms for ESG Rating Withdrawal
To harmonize with existing credit rating withdrawal policies, SEBI has relaxed certain restrictions under Regulation 28M of the CRA Regulations. For subscriber-pays ERPs, a rating may be withdrawn if there are no active subscribers; however, if the rating is part of a packaged product (e.g., an index like Nifty 50), it must remain. Additionally, lack of availability of the Business Responsibility and Sustainability Report (BRSR) is now recognized as valid grounds for withdrawal. In contrast, issuer-pays ERPs may withdraw a security’s rating only after rating it for either 3 years or 50% of its tenure (whichever is higher), and upon receiving consent from 75% of bondholders. For issuer/entity-level ratings, a 3-year rating continuity suffices.
2. Disclosures by ERPs and Stock Exchanges
Subscriber-pays ERPs may limit access to detailed ESG rating rationales to their subscribers but must disclose basic rating details—issuer name, sector, ESG rating, and date—publicly on their websites. Additionally, ERPs must publish a standardized feedback format (Annexure A) for issuers to comment on ESG reports.
Stock exchanges are directed to display ESG ratings in a structured tab on the respective issuer or security’s page. This display includes the name of the ERP, rating date, rating assigned, ISIN, and ERP business model, along with a downloadable press release.
3. Internal Audit and Governance Adjustments
To ease compliance for Category II ERPs, SEBI has deferred requirements related to internal audits and governance committees (like the ESG Ratings Sub-Committee and Nomination & Remuneration Committee) for two years. The scope of eligible professionals for audit teams has also been broadened to include Cost Accountants (ACMA/FCMA) and DISSA-certified auditors.
4. Clarification Standards for Rated Entities
ERPs must respond to issuer queries while preserving the confidentiality of proprietary models and data. Structured clarifications may cover data sources and methodology references but exclude internal deliberations and benchmarks. Issuers must respond within two working days of receiving the rating rationale.
These steps aim to create a more transparent, credible, and well-governed ESG rating ecosystem in India.
