SEBI Provides Regulatory Framework For ESG Rating Providers
Only a company incorporated with the prime objective of ESG Rating can seek registration as an ESG Rating provider.
The Securities and Exchange Board of India amended its Credit Rating Agencies Regulations on Wednesday to facilitate the registration of Environmental, Social, and Governance Rating Providers.
A company that's not a credit rating agency but has adequate net worth, as required under the regulations, can seek registration as an ESG rating provider.
The regulator had earlier approved a Business Responsibility and Sustainability Report core as a balanced framework for ESG disclosures. It had also decided to come up with norms for regulating ESG Rating providers in its March board meeting.
According to the amended regulations, only a company incorporated with the prime objective of ESG rating can seek registration as an ESG rating provider. It may seek registration in two categories. Category I is for experienced applicants. A company applying under this category shall be a subsidiary of an intermediary already registered with the board and shall have a minimum experience of five years in ESG Rating.
Its promoters should be regulated by SEBI, IRDAI, or PFRDA, or they must be ESG Rating providers from a Foreign Action Task Force compliant country. It shall have a minimum liquid net worth of Rs 10 crore at the time of application and shall maintain Rs 5 crore at all times.
Category II rating providers, however, only need Rs 20 lakh to register themselves with SEBI. It shall maintain a net worth of Rs 10 lakh at all times. It shall have two employees specialising in governance, social responsibility, sustainability, and data analytics.
Once a certificate of registration is granted, these companies shall not engage in any activities except ESG rating. It shall further abide by the code of conduct provided for ESG Rating providers. It must also have an adequate framework to maintain transparency and avoid conflicts of interest, and it must clearly publicise its rating methodology on its website.
The provider is further obligated to promptly disclose its ratings and review its ratings periodically. It is bound to submit any information called for by the regulator, besides its annual financial statements.
Further the regulations require such providers to not hold more than 10% of stake in any other ESG rating provider. The provider must also refrain from rating an associate entity, as per the amended regulations.
The amendments come into force with immediate effect.
