Markets regulator SEBI has proposed tweaking framework for ESG Rating Providers (ERPs), particularly for those using a subscriber-pays model, including an exemption from the requirement to disclose ESG ratings to stock exchanges.
Additionally, the regulator has suggested that ERPs using a subscriber-pays model should share ESG (Environmental, Social, and Governance) rating reports with both subscribers and the rated issuer simultaneously. This policy should be publicly disclosed.
ERPs should ensure that rated entities, their group companies, or associates cannot subscribe to their own ESG ratings, SEBI said in its consultation paper.
These proposals are aimed at enhancing the clarity, transparency, and regulatory alignment of ESG ratings within SEBI's framework.
The Securities and Exchange Board of India (SEBI had introduced regulations for ERPs in July 2023, but ERPs have sought clarifications on certain provisions, particularly for those using a subscriber-pays model, and accordingly, the regulator issued a consultation paper on Thursday.
In the paper, the regulator proposed that ERPs should allow issuers to respond to the ESG rating report within a set timeline. Any comments from the issuer should be added to the report as an addendum.
If the ERP disagrees with the issuer's perspective, it may respond through remarks or an addendum. Further, ERPs on a subscriber-pays model should be exempted from disclosing ESG ratings to stock exchanges, provided they confirm they have no non-public information affecting the rating.
ERPs can rate unlisted issuers or other products under specific guidelines from relevant regulators. SEBI-registered ERPs should clarify the regulatory body overseeing any non-SEBI-regulated ratings. The regulator has sought public comments on the proposals till November 15.