Latest news with #ERPs
Mint
03-05-2025
- Business
- Mint
Sebi eases ESG rating rules. But experts warn of short-term risk
MUMBAI : The market regulator has eased norms for ESG rating providers (ERPs), aligning the framework with that for credit ratings. The changes, effective immediately, aim to improve rating transparency, reduce conflicts of interest, and enhance market confidence, according to a circular issued by the Securities and Exchange Board of India (Sebi) on 29 April. Now, ERPs operating under the subscriber-pays model can withdraw ratings if there are no active subscribers or if a company fails to file its Business Responsibility and Sustainability Reporting (BRSR) report, according to the circular. For issuer-pays models, ratings can be withdrawn only after a minimum period and with bondholder consent in the case of debt securities. While subscribers like banks, insurance companies, or even the rated company itself pay to access the ratings under the subscriber-pay model, the company being rated pays under the issuer-pays model. 'Conditional withdrawal could create short-term volatility in ESG risk perception, especially when driven by administrative lapses such as missing BRSR filings," said Shailesh Tyagi, partner, sustainability and climate change, Deloitte India. However, he said, clear and transparent documentation of withdrawal rationale could help mitigate long-term reputational risk. Moin Ladha, partner at Khaitan & Co., said ratings retracted or revised unexpectedly could lead to 'fluctuating investor confidence, particularly if the conditions for withdrawal are not clearly defined or consistently applied". The Sebi circular also revamped disclosure rules for ERPs. Subscriber-pays ERPs are no longer required to publish detailed rating rationales publicly, easing their compliance burden. However, they must disclose assigned ESG ratings in a standardised, year-wise format, including details of the rated entity, sector, and the date of rating. Additionally, stock exchanges must now host ESG ratings on dedicated sections of company and debt security pages to ensure better investor visibility. Ladha said the increased compliance burden from simultaneous disclosures and reliance on public data may raise operational costs. 'ERPs may need to explore hybrid or issuer-pays models to maintain profitability and competitiveness. These changes aim at improving rating credibility, but they could challenge the subscriber-pays model's viability unless ERPs adapt effectively," he said. However, according to Ketan Mukhija, senior partner at Burgeon Law, mandatory disclosures on stock exchanges could enhance market transparency and aid more efficient price discovery for ESG-linked instruments. Experts also expect the circular to reshape ERP business models, pushing firms to reevaluate revenue strategies and compliance structures. Ladha said stricter transparency and conflict-of-interest norms could undermine the viability of the subscriber-pays model unless ERPs adapt. According to Tyagi, while these changes reduce public-facing obligations for subscriber-based ERPs, they may increase internal coordination and systemisation costs. Issuer-pays ERPs, meanwhile, must continue with full public disclosures and prepare for enhanced governance and audit requirements. Sebi granted Category II ERPs—a classification typically covering newer or smaller firms—a two-year extension before compliance with mandatory internal audits and governance committee formations kicks in. The relaxation of governance norms for Category-II ERPs 'may offer some relief, but smaller players may still struggle with capacity and compliance burdens", Mukhija said. The regulator has also expanded the pool of eligible auditors to include cost accountants and professionals with information systems security credentials. Despite initial challenges, experts are hopeful that the regulatory changes will enhance ESG rating credibility and support capital allocation into ESG-linked instruments. 'Improved visibility and transparency of ESG scores on stock exchanges will aid efficient price discovery and bolster investor confidence," said Jyoti Prakash Gadia, managing director at financial advisory firm Resurgent India. 'The changes are pragmatic, not disruptive, and will contribute to the long-term credibility of the ecosystem." The long-term impact will likely foster broader market acceptance and increased use of ESG ratings in investment decisions, experts said. Tyagi believes the reforms will bring India's ESG framework closer to global benchmarks, facilitating greater institutional interest. 'For corporates, the clarity in rating assignment, withdrawal, and disclosure norms means better planning and predictability in ESG engagement."
&w=3840&q=100)
Business Standard
24-04-2025
- Business
- Business Standard
Sebi tweaks framework for ESG rating providers using subscriber-pays model
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.
Time of India
24-04-2025
- Business
- Time of India
Sebi tweaks framework for ESG Rating Providers using subscriber-pays model
Live Events 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 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 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 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 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 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 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 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 there should not be any conflict of interest or any potential or actual abuse or misuse, it 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.
Mint
24-04-2025
- Business
- Mint
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
