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Starting today, ESG rating services can only be provided by entities that have been certified by the Securities and Exchange Board of India (SEBI). Even foreign agencies that provide ESG rating services will have to get SEBI certification if they want to provide services to entities located in India.
“On and from the date of this regulation coming into force, no person shall act as an ESG rating provider unless it has obtained a certificate from the Board,” SEBI said in a gazette notification.
“Provided that a person acting as an ESG rating provider on the date of this regulation coming into force, may continue to do so for a period of six months from the date of this regulation coming into force or such other period as may be specified by the board, or if it has made an application for grant of a certificate for registration within the specified period, till the disposal of such application,” it added.
The ESG rating service provider will have to be incorporated as a company under the Companies Act, 2013, and have specified ESG rating activity, as the main object in its Memorandum of Association. SEBI has also said if the ESG rating provider is an associate or a subsidiary of a credit rating agency, the ESG rating provider shall prominently display that ESG ratings are different from credit ratings, through its website and the ESG rating reports
Rating methodology
The certified rating agency will have to disclose its rating methodology for all ESG ratings on its website, while maintaining a balance with respect to proprietary or confidential aspects of the methodologies, and include category wise weightages of environmental, social and governance factors in ESG ratings, as well as the weightage of high level themes or key issues in each of the three factors.
The promoter of the ESG rating agency shall maintain a minimum shareholding of twenty six per cent. in the ESG rating provider for a minimum period of five years from the date of grant of registration.
Foreign ESG rating providers will have to be incorporated in the jurisdiction of a member of the Financial Action Task Force (FATF) and recognised under their respective law, having a minimum experience of five years in the business of providing ESG rating of securities or companies.
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