Sebi tweaks framework for ESG rating providers using subscriber-pays model

Business Standard

24-04-2025

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.