SEBI refines procedures and obligations for ERPs

Securities and Exchange Board of India (SEBI) issued a clarificatory circular refining procedures and obligations for ESG Rating Providers (ERPs). These updates build upon the existing framework laid out in the Master Circular dated May 16, 2024, with the goal of enhancing transparency, procedural alignment, and consistency in the ESG rating landscape.

ESG Rating Withdrawal – Clearer Norms

One of the most significant changes in the circular revolves around clarity on ESG rating withdrawal protocols, tailored to the business model of the ERP.

For Subscriber-Pays Model:

1. Rating can be withdrawn if there are no current subscribers.
2. If the rating is part of an index (e.g., Nifty 50), withdrawal is not allowed.
3. Once withdrawn, ratings must not be accessible to subscribers.
4. ERPs can also withdraw ratings if the Business Responsibility and Sustainability Report (BRSR) is unavailable.

For Issuer-Pays Model:

1. Ratings of securities can be withdrawn after 3 years or 50% of the security tenure (whichever is higher), subject to a No-Objection Certificate (NOC) from 75% of bondholders by value.
2. Ratings of entities can be withdrawn after the ERP has rated the issuer continuously for 3 years.

These rules align ESG rating withdrawal protocols more closely with those of credit ratings, offering clarity to ERPs and protection to users of ESG ratings.

Disclosure of Rating Rationales on ERP Websites

SEBI has differentiated disclosure norms based on ERP business models:

For Subscriber-Pays ERPs: Full rating rationales/reports can be shared only with subscribers, not disclosed publicly.

However, ERPs must publish the following information on their websites:

1. Name of rated issuer/security
2. Sector
3. ESG Rating
4. Date of Rating
5. Disclosures must be year-wise, clearly stating the BRSR on which the rating is based.

Standardized Format: ERPs must adopt a SEBI-approved standardized format (shared via the ERP Association) to facilitate issuer comments and ERP clarifications, balancing transparency with the protection of intellectual property.

Mandatory Disclosures on Stock Exchange Websites

Stock exchanges now have a direct role in ensuring visibility of ESG ratings:

1. ESG ratings of issuers/entities must be published prominently on the listed company’s page.
2. ESG ratings of debt securities must appear under the listed security’s page.

Disclosure format includes:

1. Name of issuer
2. Symbol/ISIN
3. Sector
4. ESG Rating
5. Rating Date
6. ERP Name
7. ERP’s Business Model

This move ensures that investors and market participants have easy access to ESG ratings, supporting informed decision-making.

Conclusion

SEBI’s April 2025 circular marks a strategic effort to tighten the ESG rating ecosystem, balancing confidentiality, transparency, and stakeholder rights. It reflects growing maturity in India’s ESG landscape, particularly as ESG performance becomes central to investment and compliance strategies.

1. For ERPs, the circular offers much-needed operational clarity.
2. For issuers, it provides avenues to engage and respond to ESG assessments.
3. For investors, these rules promise greater transparency and trust in ESG ratings.