The Securities and Exchange Board of India (SEBI) has announced the formation of a new working group to review the regulatory framework governing ESG Rating Providers (ERPs).
This review follows SEBI’s 2021 issuance of the Master Circular for ESG Rating Providers, which brought ESG rating agencies under a regulatory structure similar to that applicable to credit rating agencies. The decision to revisit the framework comes in response to feedback from market participants and stakeholders seeking greater clarity, consistency, and transparency in ESG ratings.
Global Context
SEBI’s move aligns with a broader global regulatory trend to strengthen oversight of ESG ratings. Over the past year, regulators in Europe and the UK have advanced regulatory initiatives aimed at improving governance, transparency, and methodological clarity in ESG assessments.
In 2021, the International Organization of Securities Commissions (IOSCO) called on regulators worldwide to enhance transparency and introduce appropriate oversight in the ESG ratings and data ecosystem. IOSCO recommended measures such as:
-
Clear disclosure of methodologies and data sources
-
Identification and management of conflicts of interest
-
Improved governance and internal controls
-
Enhanced comparability and reliability of ESG ratings
Composition of the Working Group
According to SEBI, the newly formed working group includes representatives from:
-
Issuers
-
Investors and ESG rating users
-
Domestic and global ESG rating providers
-
ESG analysts
-
Legal experts
-
Academia
Mandate of the Review
The working group has been tasked to:
-
Conduct a comprehensive review of the existing ESG ratings regulatory framework
-
Examine industry feedback and stakeholder suggestions
-
Recommend measures to enhance transparency, reliability, and market confidence
-
Assess international regulatory developments and align with global best practices
Why This Matters
With ESG ratings playing an increasingly influential role in capital allocation, sustainable finance, and corporate disclosure, regulatory clarity is critical. SEBI’s review is expected to strengthen governance standards, improve methodological transparency, and enhance investor trust in ESG ratings within India’s evolving sustainable finance landscape.
