**Sebi Updates ESG Rating Framework for Enhanced Transparency**
The Securities and Exchange Board of India (Sebi) has revised its framework for Environmental, Social, and Governance (ESG) Rating Providers (ERPs), particularly those operating under a subscriber-pays model. This new policy mandates that ERPs share ESG rating reports simultaneously with both their subscribers and the rated entities. The aim is to improve transparency and clarity in the ESG rating process.
Under the updated guidelines, an ERP that follows a subscriber-pays model must provide the ESG rating report to its subscribers and the rated issuer at the same time. Additionally, the rated entity will have two working days to submit any comments on the report. These comments will be included in an addendum to the ESG rating report, ensuring that all perspectives are considered.
If the rated entity disagrees with the data presented in the report, the ERP can either revise the report or issue an addendum that reflects the entity’s viewpoint, which will then be circulated to all subscribers. Furthermore, ERPs are required to publicly disclose their policies regarding the sharing of ESG rating reports on their websites. They must also offer a mechanism for rated entities to request clarifications about the ESG rating methodology or assumptions used.
Sebi has defined the subscriber-pays model as one where the ERP generates revenue from subscribers, which may include banks, insurance companies, pension funds, or even the rated entities themselves. Importantly, if the rated entity is also a subscriber, it must pay the lowest fee among all subscribers.
The regulations stipulate that only group companies or associates of an entity, whose core business necessitates ESG ratings, and are regulated by financial sector authorities, can subscribe to the ESG ratings. Sebi emphasizes that there should be no conflicts of interest or potential misuse in this process.
ERPs are also required to specify on their websites the financial sector regulator under whose jurisdiction they operate for each product and must comply with the relevant laws administered by that authority.
In summary, these amendments by Sebi aim to foster greater transparency and accountability in the ESG rating landscape, ensuring that all stakeholders are informed and engaged in the rating process.
**FAQ**
**What are the new requirements for ESG Rating Providers under Sebi’s updated framework?**
ESG Rating Providers must share rating reports simultaneously with subscribers and rated entities, allow for comments from rated entities, and disclose their policies on report sharing publicly.
