Markets regulator Securities and Exchange Board of India released a consultation paper on Thursday to facilitate ease of doing business for ESG rating providers or ERPs.
The paper proposed several regulatory changes to enhance ERPs’ scope, including rating unlisted securities and other products or issuers. Currently, ERPs are restricted to rating only listed entities.
This change aims to broaden the market for ESG ratings and encourage more comprehensive assessments of various issuers.
Entities not engaged in SEBI-regulated activities would no longer need to seek registration with the market watchdog, reducing unnecessary regulatory burdens on organizations that do not fall under the authority’s purview.
The regulator also held the view that registered ERPs that provide ratings for products or issuers outside SEBI’s regulation must indicate this in their communications. They should specify the authority under which these ratings are conducted, ensuring transparency regarding their regulatory status.
The consultation also suggested that reports on issuers should be shared simultaneously with both the subscribers and the issuing entities.
This change is designed to allow rated entities the opportunity to respond to or clarify issues raised in the reports, enhancing transparency and engagement.
ERPs would be permitted to include clarifications provided by rated entities as an addendum to the rating report, ensuring that additional context is available alongside the ratings, potentially improving stakeholder understanding.
Moreover, ERPs that use a subscriber-pays model will no longer have to share their ESG ratings or any changes with stock exchanges.
The paper suggested an activity-based regulatory framework for ERPs, which may involve integrating provisions for ESG rating within existing Credit Rating Agencies (CRA) regulations. This approach could streamline regulatory oversight while accommodating the unique aspects of ESG ratings.
The consultation paper reflects SEBI’s commitment to enhancing the operational landscape for ESG rating providers in India by reducing compliance burdens and expanding their scope of activities.
Stakeholders are encouraged to provide feedback on these proposals as SEBI seeks to refine its approach towards fostering an efficient and transparent ESG rating ecosystem.
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