SEBI Issues Master Circular for ESG Rating Providers: Key Rules, Compliance & Impact

 

🧭 Introduction

With increasing investor focus on sustainability, the Securities and Exchange Board of India (SEBI) has launched a Master Circular for ESG Rating Providers. This milestone merges existing ESG norms under the SEBI (Credit Rating Agencies) Regulations, 1999, and provides a structured, transparent framework for Environmental, Social, and Governance (ESG) raters in India 

In this article on Manika TaxWise, we walk through the key provisions, implications for stakeholders, practical tips, examples, and real-world impact. Ideal for beginners, financial professionals, investors, issuers, and ESG aspirants.

1. Why SEBI’s ESG Move Matters

• Investor demand: ESG ratings are increasingly used by institutional and retail investors to weigh sustainable business practices alongside financials.

• Credibility gap: With no prior regulation, ESG ratings lacked consistency and comparability.

• Global alignment: India joins international efforts like IOSCO to regulate ESG raters and normalize best global practices .

2. Master Circular Overview

Dated May 16, 2024, SEBI’s Master Circular consolidates all procedural and disclosure frameworks for ESG Rating Providers (ERPs) under the CRA regulations 

Here’s how:

Theme	Highlights
Registration & Certification	SEBI-certified ERP is mandatory; no provider can operate without SEBI registration
Rating Types & Scale	ERPs must offer standalone ESG, Transition Scores, Combined Scores, etc., on a 0–100 scale .
Operational Systems	ERPs need robust infrastructure for monitoring, data collection, reporting, audits.
Methodology Disclosures	Public methodology, weightage of ESG pillars, sensitivity, stress tests to ensure transparency .
Rationale & Updates	Obligation to disclose detailed rating rationale, pillar-wise scores, sensitivities .
Monitoring & Review	ESG rating updates must be made within 10 days of material events .
Archival Requirements	Maintain historical rating data for at least 10 years .
Governance Structure	Independent board, firewalls, rating committees, conflict mitigation policies mandated .
Internal Audit	Annual internal audit by qualified professionals; audit team can include CAs, Cost Accountants, or DISA-certified auditors .

3. April 2025 Circular: Clarifications & Enhancements

On April 29, 2025, SEBI released a clarificatory circular refining key rules on withdrawal, disclosures, governance, and operational transparency

3.1 Withdrawal Norms

• Subscriber-Pays Model

  • Withdrawal allowed when no active subscribers remain, or the issuer fails to submit BRSR.

  • Cannot withdraw ratings part of index like Nifty 50.

  • Withdrawn ratings must no longer be accessible 

• Issuer-Pays Model

  • Security rating withdrawal permitted after 3 years or 50% of security tenure, with 75% bondholder NOC.

  • Entity rating can be withdrawn after rating continues for 3 years 

3.2 Disclosure Norms

• Subscriber-Pays Model

  • Detailed rating rationale shared only with subscribers; must publish summary rating on website.

  • Must inform rated entity, allow 2 business days for feedback → comments included in addenda or rationale updates 

• Stock Exchanges

  • Must display ESG ratings, business model, ISIN, date, and source in separate tab on issuer/security pages .

3.3 Governance & Audit Flexibility

• Category-II ERPs get 2-year deferral on internal audit and committee requirements 

• Audit team requirements now include Cost Accountants (ACMA/FCMA) and DISA-certified professionals 

4. Practical Examples & Statistics

• Pragati Development Consulting (ICRA subsidiary) awarded Category-I ERP licence in April 2024. They follow these SEBI norms in their ESG scores 

• As of 2025, only a handful of providers are SEBI-approved; more applications under review.

• India’s ESG scores remain weak—Moody's categorizes environmental and social factors as high-risk 

• Around 1,000 listed firms already file ESG disclosures; 250 must cover 75% of supply chain by 2025–26 Reuters.

5. What This Means for Stakeholders

📈 For ERPs

• Must comply immediately with operational, governance, and disclosure norms.

• Can leverage clarity to build systems, secure clients, and scale.

📉 For Listed Firms & Issuers

• Expect thorough rating methodology, timely feedback integration, structured rating rationales.

• Businesses must prioritize ESG data by submitting accurate Business Responsibility and Sustainability Reports (BRSR).

💹 For Investors

• Evidence-based ESG rankings with transparent reporting and rationale.

• Access to public rating summaries via ERP websites or stock exchange portals.

⚖️ For Stock Exchanges

• Strategy to maximize visibility of ESG scores with dedicated web sections and standardized displays.

6. Practical Tips

1. For ERPs:

   • Audit checklist: infrastructure, methodology, governance, disclosures, rationale formats.

   • Choose qualified audit team members (CA, ACMA, DISA).

   • Draft clear withdrawal policies aligned with business model.

2. For Issuers:

   • Ensure up-to-date BRSR to avoid rating issues.

   • Proactively review rationale and share feedback within 2 days.

3. For Investors:

   • Tune into public rating tables on exchanges.

   • Ask providers about their methodology, audit process, and withdrawal terms.

7. Global Context & Implications

India’s revised ESG framework echoes global trends: EU’s transparency directives, U.S. scrutiny of ESG standards 

By embedding stringent disclosure, rating withdrawal norms, governance, and audit requirements, India boosts market trust, aligns with IOSCO, and attracts sustainable capital.

8. Conclusion

SEBI’s Master Circular and subsequent clarifications mark a pivotal point in shaping India’s ESG ecosystem. Expected outcomes:

• 🔹 Trust through strict rules and audit norms

• 🔹 Transparency via clear rationale, feedback, and disclosures

• 🔹 Accountability with withdrawal and conflict policies

• 🔹 Alignment with global standards, improving India’s ESG marketability

For Manika TaxWise, this is your gateway to understanding modern investment dynamics and helping clients and readers make sustainable, informed decisions.

🔍 FAQs (SEO-Optimized)

Q1: What is the SEBI Master Circular for ESG Rating Providers?
A: A comprehensive guideline consolidating ESG rating standards under CSR regulations, covering compliance, governance, methodology, audits, and disclosures.

Q2: Who needs SEBI certification to become ERP?
A: All ESG rating providers must be SEBI-certified. No one can operate without registration.

Q3: How do withdrawal norms differ for subscriber-pays and issuer-pays?
A: Subscriber-pays ERPs can withdraw when no subscribers or BRSR missing; issuer-pays ERPs must meet duration and bondholder consent rules.

Q4: Must ERPs publish rating rationale online?
A: Subscriber-pays ERPs share detailed rationales only with subscribers, but must display summary ratings publicly.

Q5: How are stock exchanges affected?
A: They must designate separate sections to display ESG ratings, details, and ERP business model.

Q6: What governance/audit structure is needed?
A: Independent boards, rating committees, firewalls, conflict policies, and internal audits by qualified professionals.

Q7: How does SEBI ensure global alignment?
A: These measures mirror global frameworks like IOSCO, EU, and U.S. ESG standards for credibility and compliance.

🔑 Keywords

SEBI ESG Rating Providers, Master Circular ESG SEBI, ESG withdrawal norms SEBI, ESG governance India, SEBI ESG audit requirements