Sebi tweaks framework for ESG Rating Providers using subscriber-pays model
New Delhi, Apr 24 (PTI) Markets regulator Sebi has tweaked the framework for ESG Rating Providers (ERPs), especially for those using a subscriber-pays model, requiring them to share ESG (Environmental, Social, and Governance) rating reports with both subscribers and the rated issuer simultaneously.
This policy needs to be publicly disclosed.
To give this effect, the Securities and Exchange Board of India (Sebi) has amended rules governing credit rating agencies in a bid to enhance clarity and transparency.
"An ESG rating provider following a subscriber-pays business model shall share the ESG rating report with its subscribers and the rated entity or the issuer whose securities have been rated at the same time and provide two working days to such rated entity or the issuer to provide its comments," Sebi said in its notification issued on Tuesday.
Further, all comments or clarifications received from the rated entity within the specified timeline will be included in the addendum to the ESG rating report by the ERP.
If the rated entity or the issuer has a different viewpoint on the data stated in the report, ERPs, after taking into account such viewpoint, can either revise the report or issue an addendum to the report with its remarks, for circulation to all its subscribers.
Moreover, ERPs are required to disclose the policy regarding the sharing of ESG rating reports with the rated entity or the issuer whose securities have been rated and the subscribers on its website.
Also ERP will provide a facility to the rated entity or the issuer whose securities have been rated to seek any clarification, including the ESG rating methodology or assumptions.
Sebi has defined subscriber-pays business model as a business model where the ESG rating provider derives its revenues from ESG ratings from subscribers including banks, insurance companies, pension funds, or the rated entity itself.
An ESG rating provider following a subscriber-pays business model will have to ensure that assigned rating is based only on publicly available information and that the fee paid by the subscriber is the lowest fee paid amongst all the subscribers if the rated entity or issuer is a subscriber itself.
"Only group companies or associates of an entity, whose core business requires ESG ratings of such an entity or the securities issued by such entity, and are regulated by the financial sector regulator(s) can subscribe to the ESG rating," Sebi said.
However, there should not be any conflict of interest or any potential or actual abuse or misuse, it added.
ERPs will have to state on its website the financial sector regulator or authority under whose purview it undertakes ESG ratings for each product and will have to comply with the applicable laws administered by such financial sector regulator or authority.
First Published: 24 Apr 2025, 03:01 PM IST
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
34 minutes ago
- Mint
Stocks to watch: HDFC Bank, BEL, L&T, MCX, Bharti Airtel among shares in focus today
HDFC Bank plans to take legal action following accusations from the Lilavati Kirtilal Mehta Medical (LKMM) Trust, which has urged financial regulators to suspend and prosecute the bank's Managing Director and CEO, Sashidhar Jagdishan. According to reports, Suzlon Energy's promoters, the Tanti Family and Trust, are expected to sell 20 crore shares through a block deal on Monday. Adani Group's Ambuja Cements, India's second-largest cement manufacturer, supplies close to 30% of the cement used in the country's residential and infrastructure projects, according to its latest annual report. Tata Steel, a homegrown company, plans to begin construction of its low-carbon, electric arc furnace (EAF)-based steel production facility in the UK starting July 2025, with operations expected to launch by 2027. Infrastructure giant L&T has unveiled a ₹ 500 crore ESG bond offering, marking the first Indian corporate to issue such bonds under SEBI's newly launched framework for ESG and sustainability-linked bonds. Mahindra & Mahindra recorded a 17% year-on-year increase in total sales for May 2025, with volumes rising to 80,458 units from 69,011 units in the same month last year. Production also experienced a strong growth of 28%, reaching 89,626 units compared to 70,261 units in May 2024. However, exports fell by 27% year-on-year to 2,671 units, down from 3,652 units a year earlier. Birla Opus Paints, a subsidiary of the Birla Group, has lodged a complaint with the Competition Commission of India (CCI), accusing Asian Paints, the market leader, of abusing its dominant position. Tata Electronics and Navratna company BEL have entered into a Memorandum of Understanding (MoU) to jointly work on semiconductor and electronics solutions. This partnership aims to support India's self-reliance efforts in areas such as chip design, fabrication, OSAT (Outsourced Semiconductor Assembly and Test), and defence-grade electronic components. MCX has obtained approval from the Securities and Exchange Board of India (SEBI) to introduce electricity derivatives. Telecom operator Airtel has reached out to more than 40 banks, along with the RBI and NPCI, suggesting a close partnership and a unified effort to combat digital fraud, including the exchange of information on a repository of identified fraudulent financial domains. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Mint
an hour ago
- Mint
The ONDC mutual fund pipeline has arrived. Will it take over the industry?
A small set of fintechs and ONDC (Open Network for Digital Commerce) have come up with an audacious plan to revolutionise investing in mutual funds for India's masses. The initial pipeline has been built out and is operational. The full plan, still at the discussion stage among fintechs, mutual funds and ONDC, is breathtaking in its scope since it would involve a change to Sebi's (Securities and Exchange Board of India) regulations on the distribution of mutual funds. At the heart of this plan is the system created by a fintech company called Cybrilla. Cybrilla, which has a license from Sebi as a Registrar and Transfer Agent, has built a system where the distributor and mutual fund can directly interface, bypassing legacy platforms. According to a fintech executive familiar with the matter, this brings down the cost per transaction from the current ₹2-7 range to just ₹0.75. The newer tech rails also give distributors more visibility on issues like transaction failures or delays. Eight mutual funds have entered the ONDC system, including the large players. A new route of investing in MFs 'Think of us as a digital branch of the mutual funds. We will be time-stamping the transactions at the back-end, and with the help of our APIs, which are now plugged into the ONDC ecosystem, we will enable the last-mile distributor to connect with mutual funds directly. We will use Aadhar-based KYC for onboarding new investors. The system will bring down costs, which will enable mutual funds to facilitate low-ticket systematic investment plans (SIPs)," said Anchal Jajodia, co-founder of Cybrilla. APIs are application programming interfaces, and KYC is know your read | What changed for India's mutual fund industry in FY25. Here are the top trends API enables two separate software programmes to talk to each other. 'ONDC, like UPI, creates a standardised language for all participants; what is technically called a protocol. As a result, different apps and platforms can work together smoothly, like speaking the same language in a digital marketplace," explains Hrushikesh Mehta, senior vice president - financial services, ONDC. ONDC was launched by the Department for Promotion of Industry and Internal Trade (DPIIT), which is under the commerce ministry, in 2022. The core idea behind launching ONDC was to decentralise the e-commerce segment, enabling local sellers—small business owners or small shop owners—to be discovered by buyers without the need to be on a platform. The Association of Mutual Funds in India (Amfi) in its Vision Paper 2025 has already envisioned 'scaling models like ONDC for greater impact". High-traffic kiosks staffed by trained advisors could explain mutual fund products in regional languages while offering real-time onboarding with mobile technology. Kirana shop owners could be equipped with digital tools to onboard customers, explain products and facilitate small-ticket SIPs, replicating the success of India's Common Service Centres for government services," Amfi said in its vision document. A new category of distributors 'The core proposition of ONDC is to make local kirana stores a point of acceptance for mutual fund investors," said Jajodia of Cybrilla. However, this may require relaxing the regulatory requirements for distributing mutual funds or limiting the products that such distributors can offer or both. Also read | How online bond platforms work—and why premature exits are tricky 'Local kirana store owners can be given an algo-based system that does the basic risk-profiling of the investor as required by the regulations and suggests a suitable product to the investor," said the fintech executive. 'There can be a new category of distributors," a mutual fund executive said and shared a proposal that has been put forth before the regulatory body to create a light regulation for such distributors, which does away with requirements such as passing the NISM VA. The National Institute of Securities Markets conducts the NISM VA exam, which is a requirement for getting an MF distributor licence.'Instead, there could be a short, bite-sized course on explaining mutual funds to these first-time distributors," the mutual fund executive said. Before a new set of ONDC-based distributors is created to widen the reach of mutual funds in small cities and towns, fintech platforms are taking the lead. For example, Bachatt has launched a low-ticket daily SIP product, which allows investors to save and invest a minimum of ₹51 in mutual funds read | You can now gift securities online. Here's how. 'We are currently offering only one fund—ICICI Ultra Short Term Fund. The cost-efficiency of ONDC helps to offer a low-ticket product. Later, we may even consider cross-selling credit and other products as investors would need different financial products at different life stages," said Anugrah Jain, co-founder and chief executive officer of Bachatt, which aims to give regulated savings products to small shopkeepers, food stall owners or mid-sized organised businessmen, through mutual funds. 'Over time, we plan to add more mutual fund products, but initially we want to offer simple debt products with the least risk," Jain added. According to Jain, Bachatt currently has 15,000 investors with an average daily SIP of ₹105. What mutual funds say 'The eventual goal is to even enable daily wage earners, small business owners, and local entrepreneurs to do low-cost mutual fund SIPs. Their cash flow cycles are very different from those of regular salaried-drawing investors in the cities. There is potential to widen the market size itself by taking mutual funds to the underserved," said Arpanarghya Saha, chief digital officer at Nippon India Mutual Fund. According to data from Amfi, 82% of mutual fund assets are concentrated in the top 30 cities (data as of 30 April 2025) or T30 cities, as these are known in the industry. The remaining 18% is in smaller cities and towns. 'We need to look at the customer lifetime value. As long as assets grow and investors stay invested—buying the product for the right reasons and aligned with the right goals—these assets will naturally increase, since they are all market-linked products. Investment returns will, by default, increase the asset size. Over time, economies of scale will help sustain these products. However, the associated costs may not seem feasible in the initial stages," said Boniface Noronha, senior vice-president & head-digital business, Axis Mutual Fund. Also read | How stock market investors and traders can use liquid ETFs to manage cash Some of the initial costs would include the folio creation charge, which is charged by the Registrar and Transfer Agent, and the KYC PAN check, which is charged by KYC registration agencies. These mutual funds have already onboarded on ONDC—Axis Mutual Fund, UTI Mutual Fund, HDFC Mutual Fund, Quant Mutual Fund, ICICI Mutual Fund, Aditya Birla Sun Life Mutual Fund, Nippon India Mutual Fund and 360One Mutual Fund. According to industry sources, more mutual funds are planning to be onboarded on ONDC. According to Ganesh Ram, managing director and chief executive officer of MF Utilities (MFU), established systems still have a significant role to play in deepening MF penetration. "MFU is a special vehicle created by mutual funds which absorbs the KYC cost and payment gateways charges, folio maintenance and non-financial transactions. Hence, focusing on transaction charge comparison may not be appropriate." He added that the prevailing payment gateway charges have also come down, which is approximately ₹2 for UPI mandate registration and ₹0.5-0.75 per transaction (per quarter). 'In all payment modes, it's only net banking that's relatively expensive," he said. An email query sent to BSE Star MF did not elicit any comment at the time of publishing. Ironing out teething issues Vishrant Suresh, founder of Asset Plus, a mutual fund platform for distributors, says ONDC's reliability should improve. 'We have been testing the ONDC pipeline with a few hundred transactions each month. Initially, the transaction rate failures were relatively high, as it was a new system. However, the framework is evolving, and we expect the reliability to reach industry norms very soon," he told Mint. Another mutual fund executive, who declined to be named, said that the initial momentum may be more due to a regulatory push than genuine interest from mutual funds. A number of fintechs have signed on, like Appreciate and Bachatt. It is likely that failure rates will go down as the system matures further and the cost savings are attractive to mutual funds. Legacy systems have their own issues. A large number of transaction failures on election results day on 4 June 2024 was a wake-up call to players relying on legacy rails. Investors trying to 'buy the election results dip' that day ended up getting the next day's NAV (net asset value) after the market rose due to transaction processing delays. The system just couldn't handle the load. However, the proposals advanced by the fintechs and AMCs associated with the ONDC rails go much further. Their next aim is payment gateways (aggregators), which take a cut out of each transaction ( ₹2-3 for SIP mandates). There are two possible solutions. The first one is to partner with a bank that wants to break out into this space, according to the first fintech executive. The second is more audacious. It envisages the use of RBI's Central Bank Digital Currency or CBDC. The CBDC is currently operational, and customers of large banks like HDFC Bank can download wallets and load them with e-rupee. However, usage at the retail level is minimal since a CBDC can only be transferred to another CBDC wallet. However, if the system is adopted by mutual funds and investors create wallets—the collection of money becomes drastically cheaper.
Economic Times
2 hours ago
- Economic Times
Stocks in news: HDFC Bank, Suzlon Energy, Tata Steel, BEL, MCX
Live Events (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel Markets ended the week on a firm note, gaining nearly a percent, supported by favorable domestic cues. In today's trade, shares of HDFC Bank Tata Steel , BEL, MCX among others will be in focus due to various news Bank will pursue legal remedies in response to allegations made by the Lilavati Kirtilal Mehta Medical (LKMM) Trust, which has called on financial sector regulators to suspend and prosecute the bank's Managing Director and CEO, Sashidhar markets regulator Sebi has issued a corrigendum to its recent interim order in the IndusInd Bank insider trading Energy's promoters, the Tanti Family and Trust, are likely to offload 20 crore shares in a block deal on Monday, according to reports. Adani Group firm Ambuja Cements -- the second largest cement producer in the country -- contributes to nearly 30% of the cement used for India's homes and infrastructure, the company said in its latest annual reportTelecom operator Airtel has approached over 40 banks, as well as RBI and NPCI, proposing a close collaboration and a unified front to curb digital frauds, including sharing intelligence over repository of known fraudulent financial Tata Steel is expecting to start the construction of its low-carbon EAF-based steel making project in the UK from July 2025 and commence operations by MD Sat Pal Bhanoo has been entrusted with the financial and administrative powers and functions of LIC's CEO and MD for 3 months with effect from June announced the start of operation of the third phase of part capacity of 53.57 MW of the 300 MW Karnisar Solar Power Project, BikanerHindustan Copper Ltd (HCL) said it has signed a Memorandum of Understanding (MoU) with has signed a memorandum of understanding (MoUs) during an official delegation visit to Sweden and Denmark, aiming to strengthen its marine engineering portfolio and explore opportunities in expedition cruise received a Securities and Exchange Board of India (Sebi) nod to launch electricity derivativesTata Electronics and Bharat Electronics Ltd (BEL) signed a memorandum of understanding (MoU) to jointly explore semiconductor and advanced electronics solutions.
