Mumbai – SEBI has constituted a working group to review the regulatory framework for ESG rating providers, reopening a regime that has been in force for barely two years.
Only providers registered with SEBI may issue ESG ratings on Indian entities. The framework sits within the Credit Rating Agencies Regulations through a dedicated chapter, rather than as standalone legislation.
What the rules already require
A provider must hold net worth of at least 10 crore rupees and employ at least one specialist each in data analytics, sustainability, finance, information technology and law. Since August 2025, rating data submitted by credit rating agencies and ESG rating providers is consumed automatically and published through the stock exchange websites.
Central publication is the underrated provision. When ratings sit behind separate paywalls, divergence between providers is invisible. When they appear in one place, an investor can see that the same company carries very different scores from different houses.
The problems the framework was built to fix
SEBI identified three when it first consulted: opacity of methodology, conflicts of interest, and the absence of India-specific considerations.
The third is the most substantive and the least discussed. Global ESG methodologies penalise characteristics common to Indian corporate structures, notably promoter shareholding and group company transactions, while weighting disclosure volume heavily. A company that reports extensively can score above a company that performs better but says less.
The conflict that has not gone away
Where a rated company pays for its own rating, the incentive problem is structural and familiar from credit ratings before 2008. Subscriber-pay models avoid it but are harder to fund in a small market.
The working group review is an opportunity to address that directly. Whether it does is the thing worth watching, because everything else in the framework depends on the rating being independent of the rated.
Source: SEBI press release constituting a working group on ESG Rating Providers, and the SEBI Master Circular for ESG Rating Providers.
