The Securities and Exchange Board of India (Sebi), through a notification issued on July 3, has mandated that all entities providing ESG (environmental, social, governance) rating services will have to get a certification from the regulator within six months.
- It means, ESG rating services can only be provided by entities that have been certified by the Securities and Exchange Board of India (SEBI).
Key points
- 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.
- 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.
- 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.
- 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.
- The certified rating agency will have to disclose its rating methodology for all ESG ratings on its website.
- The promoter of the ESG rating agency shall maintain a minimum shareholding of twenty six per cent.
