SEBI has released a Consultation Paper on October 31st ,2024 for ESG ratings
providers (ERPs). Since launching the framework in July 2023, SEBI has registered
15 ERPs, potentially the highest among major geographies.
The consultation papers seek to lay out regulations concerning with subscriber-pays model of ERPs, where a person subscribes to rating services of the ERP, under which ERPs rates companies’ basis information available in public domain and doesn’t seek any information or solicitation from the company being rated.
A summary of the key proposals is outlined below:
Proposal 1- Sharing Draft ESG Rating Report
- Current Rule: ERPs must share draft reports with the issuer before publication.
- Amendment proposed: ERPs following a subscriber-pays model should share the ESG rating report with both the subscribers and the rated issuer at the same time to ensure transparency. Additionally, rated entities (and their affiliates) should not be allowed to subscribe to their own ESG ratings.
Proposal 2- Appeals and Representation by rated companies
- Current Rule: ERPs must allow issuers an opportunity for appeal.
- Amendment Proposed: ERPs following a subscriber-pays model should also allow rated issuers to make representations or clarifications on the ESG rating report. The ERP can revise the rating or issue an addendum with remarks based on issuer feedback.
Proposal 3- Dispensing with Disclosure to Stock Exchanges
- Current Rule: ERPs are required to disclose ESG ratings to stock exchanges.
- Amendment proposed: ERPs following a subscriber-pays model should be exempt from this disclosure requirement considering that they are rating companies at our own based on the information available in public domain. They shall continue to disclose ratings on their own website.
Proposal 4- Activity-Based Regulation for ERPs
- Current Rule: Extant Regulations permit ERPs to provide ESG ratings to only listed/ proposed to be listed issuers/ securities and to undertake such activities as SEBI may notify
- Amendment proposed: ERPs can rate unlisted issuers or other products, subject to guidelines from relevant authorities. ERPs rating non-SEBI regulated products should not present themselves as SEBI-regulated and shall not be required to seek registration with SEBI.
Last date for submission of comments on SEBI Portal: November, 15th 2024.