The Securities and Exchange Board of India (SEBI) put forward stricter environmental, social, and governance (ESG) rules on January 24, as reported by Bloomberg on the same day. The capital market watchdog intends to reduce the risk of greenwashing and misuse of ratings by companies. According to the public consultation paper for the new policy, SEBI plans to regulate ESG rating providers (ERPs), mandate disclosures, and only allow accredited ESG raters to assign ESG ratings of listed entities, registered funds, or index providers. Additionally, SEBI proposed a subscriber-pay model for such ESG ratings, while traditional credit-rating companies gain revenue from bond issuers. The consultation paper is open for public comments until March 10.

The consultation paper suggests that the securities market requires a proper rating framework, as the increasing reliance on unregulated ERPs has drawn concerns over the risks it brings to investor protection, transparency and efficiency of markets, risk pricing, and capital allocation. To select qualified ESG raters, SEBI proposed that credit-rating firms and research analysis firms with at least INR100m (USD1.3m) of net worth can file for accreditation. Aside from tightening restrictions on ESG raters, SEBI has been working on the development of its ESG disclosure framework. In 2019, SEBI mandated that the top 1000 listed enterprises by market cap shall include a Business Responsibility Report (BRR) in their annual reports, consistently increasing the number of mandated companies from 500 in 2015 and 100 companies in 2012. Then, in 2021, SEBI replaced the BRR with the Business Responsibility and Sustainability Report (BRSR), a more comprehensive framework with nine principles of National Guidelines for Responsible Business Conduct (NGBRC) and incorporating sustainability metrics.

Sources:

https://www.bloomberg.com/news/articles/2022-01-24/india-s-capital-markets-regulator-proposes-tighter-esg-rules

https://www.thehindubusinessline.com/markets/sebi-to-allow-only-accredited-entities-to-provide-esg-rating/article64939563.ece

https://corporate.cyrilamarchandblogs.com/2021/12/an-introduction-of-esg-disclosures-in-indian-regulatory-space-part-1/

https://indiacsr.in/sebi-makes-brsr-applicable-to-the-top-1000-listed-companies/