Governance Briefing — July 1, 2022
India’s Securities and Exchange Board notified amended Credit Rating Agencies Regulations on July 1, 2022, bringing ESG rating providers under SEBI registration with governance, conflict management, and transparency obligations.
Executive briefing: On 1 July 2022 the Securities and Exchange Board of India (SEBI) brought the Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2022 into force, formally recognising ESG Rating Providers (ERPs) and mandating their registration with SEBI. The move subjects ERPs to credit rating agency governance requirements, including board independence, fit-and-proper criteria, internal controls, and conflict-of-interest safeguards. A subsequent circular on 25 July 2022 detailed disclosure formats, rating methodologies, and subscriber protections.
What changed
- Compulsory SEBI registration. ESG rating providers must obtain a certificate of registration as ERPs, adhere to a code of conduct, and maintain oversight by independent directors.
- Conflict management structures. ERPs must establish policies to prevent misuse of non-public information, segregate commercial and analytical functions, and disclose shareholding and client concentration.
- Transparency and methodology disclosure. The July circular requires publication of rating methodologies, key performance indicators, and rating rationales while offering issuers a review mechanism.
Implications for operators
- Public sector enterprises. State-owned companies using ESG ratings for bond issuances must ensure selected ERPs hold SEBI registration and comply with disclosure protocols.
- Financial institutions. Asset managers and lenders relying on ESG scores must recalibrate vendor due diligence, incorporating SEBI governance checkpoints and data quality reviews.
- Technology and service providers. ESG data platforms partnering with ERPs need contractual controls to manage data sharing, confidentiality, and dispute processes mandated by SEBI.
Action checklist
- Verify SEBI registration status and governance disclosures for all ESG rating vendors.
- Update vendor-management scorecards to include ERP conflict-of-interest and methodology transparency requirements.
- Align internal sustainability reporting controls with ERP data requests and review mechanisms.
Sources
- SEBI (Credit Rating Agencies) (Amendment) Regulations, 2022
- SEBI circular on ESG Rating Providers for securities markets
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