SEBI Launches Working Group to Review ESG Ratings Provider Framework

India's Securities and Exchange Board has announced the formation of a new working group to conduct a comprehensive review of the regulatory framework governing ESG Rating Providers, following feedback from market participants about the current rules. The review reflects broader global momentum among regulators to update oversight of the ESG ratings and data sector.

SEBI introduced its Master Circular for ESG Rating Providers in 2021, bringing ESG ratings providers under a regulatory framework modelled on that for credit rating agencies. The new working group includes representatives from issuers, investors, ESG ratings users, domestic and global ratings providers, ESG analysts, legal experts, and academics. Its mandate covers a comprehensive review of the current framework, examination of stakeholder suggestions, evaluation of international regulatory developments, and recommendations to enhance transparency, reliability, and confidence in ESG ratings, including alignment with global best practices.

SEBI's review forms part of a global wave of ESG ratings regulation. Europe's ESG Ratings Regulation, approved in November 2024 and taking effect in July 2026, will require providers to publish methodologies and meet strengthened governance requirements for operating in the EU. The UK is also consulting on a similar regulatory framework. The international standards body IOSCO called in 2021 for improved transparency and regulatory oversight in the ESG ratings sector, recommending conflict of interest disclosures and methodology publication. SEBI's review will assess how India's framework aligns with these evolving international standards.

The outcome of SEBI's review could result in updated requirements for ESG ratings providers operating in India, covering methodology transparency, data sourcing, conflict of interest management, and quality assurance standards. As India's sustainability reporting landscape evolves — including the Business Responsibility and Sustainability Report requirements for listed companies — the quality and comparability of ESG ratings used by domestic and foreign investors will become increasingly important. For companies seeking to improve their BRSR disclosures and ESG ratings, the review could also clarify what standards and data points SEBI-regulated ratings providers will assess.

Key figure — 2021 (SEBI Master Circular for ESG Rating Providers)