India’s Securities Regulator Reviews ESG Ratings Framework After Market Feedback

Key Takeaways

• ESG Framework Under Review: SEBI is reviewing the regulatory framework governing ESG Rating Providers following market feedback.
• Focus on Market Confidence: The review centers on improving transparency, reliability and investor trust in ESG ratings.
• Global Alignment Considered: International regulatory developments will be evaluated for potential alignment with global best practices.
• Stakeholder Input Examined: Representations and suggestions from market participants will form part of the assessment.

Deep Dive

India’s securities regulator is revisiting the rules that govern how sustainability performance is measured and translated into market signals. The Securities and Exchange Board of India announced that it will review the regulatory framework applicable to ESG Rating Providers, a move that places the broader sustainability ratings architecture under examination rather than any single firm or methodology.

The decision follows feedback received from market participants and stakeholders regarding the existing framework. While SEBI has not detailed specific concerns, the announcement makes clear that the regulator sees the current structure as ripe for reassessment at a time when ESG ratings play an increasingly visible role in capital allocation.

A Framework Under the Microscope

ESG ratings have become embedded in investment processes, corporate reporting strategies and sustainability-linked financing decisions. In that context, the regulatory framework governing ESG Rating Providers has effectively become part of the market’s plumbing.

SEBI’s review will examine the existing rules in a comprehensive manner. It will consider representations and suggestions submitted by market participants and assess whether changes are required to strengthen the framework.

At the core of the exercise is a focus on transparency, reliability and investor confidence, three pillars that underpin the credibility of sustainability-linked information in public markets.

Balancing Global Developments and Local Realities

The regulator’s review is not limited to domestic considerations. SEBI has indicated that international regulatory developments in the ESG ratings space will be evaluated as part of the exercise.

That includes identifying areas where India’s framework may align with global best practices, while ensuring that any recalibration remains grounded in the specific characteristics of the Indian market.

As jurisdictions worldwide continue to refine oversight of ESG data and ratings, the question for regulators has shifted from whether to regulate to how to calibrate. SEBI’s review reflects that shift.

As part of the process, SEBI has constituted a Working Group comprising representatives from issuers, investors and ESG rating users, domestic and global ESG Rating Providers, ESG analysts, legal experts and academia. The group will submit its findings and recommendations to SEBI, including any proposed policy and regulatory changes.

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