Framework for ESG Rating Providers released by SEBI
SEBI has issued a Consultation Paper on Environment, Social and Governance (ESG) Rating Providers (ERP) for Security markets.
Key features are as follows –
- A listed entity who intends to avail an ESG rating, shall obtain the same only from a SEBI Accredited ERP.
- SEBI-registered entities engaged in fund-based investment activities such as mutual funds or alternative investment funds, desirous of using third-party ESG ratings as part of their decision-making process for investing in Indian securities shall avail services of SEBI-accredited ERPs.
- In order to ensure uniformity, where an index-provider uses ESG ratings for formulation of index/indices on Indian securities only SEBI-accredited ERPs shall be used for formulation of such index.
- SEBI-registered Credit Rating Agencies and SEBI-registered Research Analysts are proposed to be considered eligible to be accredited by SEBI as ERPs.
- ERPs are required to prominently display on their website and in ESG rating reports, the type of ESG rating product (whether impact-based, or risk-based, or otherwise), the disclosure of rating method for all products.
- ERPs have to maintain a balance with reference to proprietary or confidential aspects of the methodologies.
- Since, ‘subscriber-pay’ is the predominant business model followed by most ERPs globally, SEBI has proposed that ERPs may be mandated to follow a ‘subscriber-pay’ business model.
The amended rules shall be effective immediately
Kriti Mehta, Audit Associate, SW India
