On Wednesday, the Securities and Exchange Board of India revised its Credit Rating Agencies Regulations to allow Environmental, Social, and Governance Rating Providers to register. An ESG rating provider might be a non-credit agency with a sufficient net worth.
According to the new regulations, only a firm incorporated for ESG rating can register as an ESG rating provider. It could register in two categories.
Category I is for experienced candidates. A company applying under this category must be a subsidiary of an intermediary already registered with the board and have at least five years of ESG Rating experience. ESG Rating providers from a Foreign Action Task Force-compliant jurisdiction or SEBI, IRDAI, or PFRDA-regulated promoters are required. It must have a minimum liquid net worth of Rs 10 crore at application and Rs 5 crore at all times.
Category II rating providers need Rs 20 lakh to register with SEBI. It must always have Rs 10 lakh in net worth. Two staff will specialize in governance, social responsibility, sustainability, and data analytics.
These companies can only do ESG grading after receiving a registration certificate. ESG Rating providers’ code of conduct will also apply. It must also clearly publish its rating process on its website and have a suitable framework to ensure transparency and avoid conflicts of interest.
The provider must also share its ratings and assess them regularly. The regulator must get its annual financial statements and any other information requested. According to regulations, ESG rating providers cannot own more than 10% of another ESG rating service. The updated rules also prohibit the provider from rating an associate entity. Immediately, the adjustments take effect.