SEBI constitutes Working Group to Review ESG Rating Providers (ERPs) Regulatory Framework

SEBI constitutes Working Group to Review ESG Rating Providers (ERPs) Regulatory Framework

• SEBI forms working group to review ESG rating regulations
• Group to suggest ways to boost transparency and investor trust
• Report will recommend policy changes for ESG rating providers

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Market regulator Securities and Exchange Board of India (SEBI) has constituted a working group to undertake a review of the regulatory framework governing ESG (Environmental, Social, and Governance) Rating Providers or ERPs. SEBI’s move follows feedback received from market participants and stakeholders regarding the current regulatory framework. The Working Group comprises representatives from Issuers, Investors, ESG Rating Users, domestic and global ESG rating providers, ESG analysts, legal experts and people from academia.

As per the SEBI press release, the working group is tasked with the mandate to undertake a comprehensive review of the existing regulatory framework governing ERPs. Also, to examine representations and suggestions received from market participants. To, recommend measures to enhance transparency, reliability and investor confidence in ESG ratings. Evaluation of international regulatory developments in the ESG rating space and identify areas for alignment with global best practices, while considering the Indian market context.

The Working Group will submit its report to SEBI with findings and recommendations on policy and regulatory changes required in the ERP framework.

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What is ESG Score?

An ESG score, which stands for Environmental, Social, and Governance score, is a metric used to evaluate a company’s performance across three key areas. The environmental component assesses the company’s impact on nature, including carbon emissions, energy use, pollution, and waste management. The social pillar examines how the company manages relationships with employees, customers, and communities, covering aspects such as diversity, labour practices, and customer welfare. Governance evaluates leadership quality and corporate conduct, including board structure, executive compensation, transparency, and ethical standards. These scores are typically assigned by specialised ESG rating agencies. There are investors who value social impact of businesses and invest in companies based on ESG scores.

ESG in India

The core principle behind ESG is that businesses should look beyond profit and consider their responsibilities towards the society. The Companies Act 2013 and the 2021 BRSR framework, have mandated ESG disclosures for top listed firms. SEBI has mandated strict ESG compliance for top 1000 listed entities through the Business Responsibility and Sustainability Report (BRSR) Core framework.

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