SEBI's draft regulatory framework for ESG Rating Providers
Given the increasing importance of ESG Rating Providers in making investment decisions, SEBI has proposed to introduce a regulatory framework for “ESG Rating Providers” or “ERPs”. It is proposed that ERPs may register with SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999, and the CRA Regulations shall be amended to include a chapter for ERPs. However, given the nascent nature of the ERPs and to provide for scope for further innovation, SEBI has attempted to follow a principles-based approach, while balancing SEBI's mandate of protection of interest of investors in the securities market.
The Proposal also includes ESG transition/ Parivartan score - measuring the velocity of and investments in making the transition to Net Zero Goals. There will be category I and category II of registration and the certificate of registration shall be valid till the ESG rating provider is wound up. Every ESG rating provider shall make adequate levels of public disclosure and transparency a priority for its ESG ratings products, including its methodologies and processes and disclose ESG rating, type of ESG rating (whether risk-based or impact-based or otherwise), and scores on environmental, social and governance parameters, and any other parameter forming a part of overall ESG rating, on their websites for public access and provide a hyperlink to the methodology placed on website. Every ESG rating provider shall inform the Board and the general public about new ESG rating instruments or symbols introduced by it.
