SEBI Consultation paper on ESG Rating Providers for Security Market
Securities Market regulator, SEBI proposed a framework to regulate ESG (Environment, Social and Governance) Rating Providers (ERP) that seeks to allow credit rating agencies and research analysts to provide such services. As per the proposed framework, Credit Rating Agencies (CRAs)and research analysts with a minimum net worth of Rs 10 crore would be eligible to be accredited as an ERP. It also propose that an ERP must have adequate infrastructure to undertake necessary due diligence for assigning ESG ratings to listed entities including, but not be limited to, appropriate database collection and management systems, and analysis/ filtering tools (either in-house or outsourced) and should offer at least one of the ratings products — ESG impact ratings, ESG corporate risk ratings or ESG financial risk ratings — and any other ESG related rating products, which may be appropriately labelled. At present the activities of ERPs are typically not subject to regulatory oversight hence increasing reliance on such unregulated ESG rating providers in securities markets raises concerns about the potential risks it poses to investor protection, the transparency and efficiency of markets, risk pricing, and capital allocation etc.
Comments on Consultation Paper on ESG Rating Providers may be submitted to the SEBI by March 10, 2022.
