SEBI recently came out with a consultation paper on draft circular on “Strengthening of ESG Rating Providers (ERPs)” aiming to enhance transparency and accountability. The proposals focus on key areas such as withdrawal of ESG ratings and disclosure of rating rationale. ERPs are entities providing environment, social and governance (ESG) ratings. Last year, the market regulator made it mandatory for such entities to register and obtain an ERP license.

Now, in a discussion paper, SEBI has outlined conditions for ERPs to withdraw ratings under both subscriber-pays and issuer-pays models. Under the subscriber-pays model, SEBI has proposed that ERPs can withdraw a rating if there are no subscribers for the rating. However, if the rated entity or instrument is part of a rating package (such as the Nifty 50 index) with subscribers, the rating may not be withdrawn. Also, if any rating is withdrawn, the rating has to be withdrawn for all subscribers. Meanwhile, under the issuer-pays model, ERPs will be able to withdraw a rating after rating the security continuously for three years, or 50 percent of the security’s tenure -- whichever is higher-- and on receiving a nod from 75 percent of bondholders by value.

Public comments may be submitted by 6^th March, 2025.

Click the icon to access the consultation paper-