ESG ratings framework likely to be introduced soon: ICRA MD

ICRA will roll out out ESG (environmental, social, and governance) ratings  as soon as the norms are finalised by the market regulator, according to ICRA MD and Group CEO Ramnath Krishnan.

The regulatory framework on ESG ratings is in the works and is likely to be introduced soon..

“We are preparing ourselves well for the ESG piece. We have made three assumptions and prepared for all possibilities. It might require some adaptation but we are ready,” Krishnan told businessline.

SEBI, had in April 2021, issued a discussion paper seeking feedback on the ESG framework, but the final set of guidelines or framework have not been released yet.

“I would expect, sooner or later, it will land. But what form and shape it will land in, we don’t yet know,” Krishnan said, adding that it is unlikely that SEBI will mandate certain industries to get an ESG rating and is expected to make it optional.

ESG framework

ESG ratings are especially important for corporates at the top end of the spectrum — that raise funds from international funds or multilateral agencies like IFC or World Bank.

“They (international investors) can’t be seen as irresponsible investors, or investing in sectors which have a huge carbon footprint. So, you’re talking about corporates who typically access $7-10 billion every year, need to necessarily go to these places, and therefore, have to be seen as responsible,” he said.

While companies can deny sharing their ESG framework and information as of now, they will be obligated to do so once the framework comes, which will make tracking the compliance and progress easier, he added.

Ratings methodology

ICRA currently assesses the impact of companies’ ESG governance and protocols as a part of the overall governance assessment, especially with respect to industries which have a huge carbon footprint.

Since the last 1-1.5 years, it has also included a section on ESG in its company specific ‘credit perspective’ reports, that are typically subscribed to by lenders, Krishnan said, adding that from October, ICRA has also added a narrative on ESG for the rating rationale of listed companies.

“We believe that this is something we should cover proactively. This is also a consideration that’s important for us. We want to also establish ourselves as a thought leader in this space,” he said.

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