Sebi notifies regulations for ESG rating providers

New Delhi: Markets watchdog Sebi has notified the regulations for ESG rating providers. The regulations also come in the backdrop of increasing interest of stakeholders, including investors and financial regulators, in examining Environmental, Social and Governance (ESG)-related issues. Till now, the activities of ESG rating providers were not subject to regulatory or supervisory norms.

Now, the Securities and Exchange Board of India (Sebi) has amended its regulations pertaining to credit rating agencies.

"On and from the date of this regulation coming into force, no person shall act as an ESG rating provider unless it has obtained a certificate from the board," the regulation said in a notification dated July 3.

To become an ESG rating provider, the entity will have to comply with various requirements. These include the condition that the entity, at all times, should have at least four employees specialised across the areas of governance, sustainability, social impact or social responsibility, data analytics, finance, information technology, and law, as per the regulations.

An ESG rating provider should maintain a website and disclose the ratings, among other details. It should also disclose its rating methodology for all ESG ratings on its website maintaining a balance with respect to proprietary or confidential aspects of the methodologies.

According to Sebi, an ESG rating provider should not directly or indirectly hold ten per cent or more shareholding or voting rights in any other ESG rating provider.

"A shareholder holding ten percent or more shares or voting rights in an ESG rating provider shall not hold ten per cent or more shares or voting rights, directly or indirectly, in any other ESG rating provider," it said.

However, the restriction would not be applicable to holdings by pension funds, insurance schemes and mutual fund schemes.

Among others, Sebi said that no ESG rating provider should rate an issuer or securities of any issuer, which is its promoter.

"An ESG rating provider shall neither assign any ESG rating to an issuer promoted by it or its associates, nor rate securities of such issuers," it added.

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