SEBI has, on 24 January 2022, issued a consultation paper in order to streamline and regulate the Environment Social and Governance (“ESG”) rating providers (“ERP”).
The consultation paper proposes that only accredited entities registered with SEBI may be permitted to provide ESG ratings so as to ensure standardisation of the ratings and to avoid confusion. The SEBI accredited entities may include rating agencies and SEBI registered research analysts having a minimum net worth of INR 100,000,000 (Indian Rupees One
Hundred Million). A listed entity would only be able to obtain ESG ratings from an accredited ERP.
In the consultation paper, it is suggested that ERPs need to specifically state the domain to which their products are connected. For example, carbon risk ratings cannot be referred to as ESG ratings. Further, ERPs need to provide at least 1 (one) of the following rating products, namely: (a) ESG impact ratings; (b) ESG corporate risk ratings or ESG financial risk ratings; or c) any other ESG related rating products, which shall be appropriately labelled.
SEBI also proposed that ERPs should use appropriate terminologies regarding the products they offer and to disclose the rating scale and ESG rating reports on its website. An accredited ERP should also ensure consistency in the application of their ESG rating scale.
Every ERP should have professional rating committees, comprising of members who are adequately qualified and knowledgeable to assign a rating. Further, it is proposed that ERPs should follow a subscriber-pay business model.
Public comments have been invited on the above consultation paper on ESG rating providers for securities markets.
Please click here to read the consultation paper.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Lawal@acuitylaw.co.in
