Amish Mehta, Managing Director and CEO, CRISIL Ltd, said: “The approval comes at an opportune time when ESG disclosures have been improving and there is increasing realisation in the financial markets on the need for independent ESG ratings.”
Last year, Sebi said that ESG rating services can only be provided by entities that have been certified by it.
The Securities and Exchange Board of India (Sebi) has approved Crisil ESG Ratings & Analytics as a Category 1 provider of environmental, social, and governance (ESG) ratings. Crisil ESG Ratings, a unit of Crisil, was incorporated after Sebi amended the SEBI (Credit Rating Agencies) Regulations, 1999, to include provisions on ESG Rating Providers (ERPs) last year.
The rating provider launched its ESG scoring business in 2021 and now tracks over 1,000 companies across 65 sectors. The company said this business will now be transferred to the subsidiary Crisil ESG Ratings.
Amish Mehta, Managing Director and CEO, CRISIL Ltd, said: “The approval comes at an opportune time when ESG disclosures have been improving and there is increasing realisation in the financial markets on the need for independent ESG ratings that will support decision-making for issuers and investors, and channel funds towards sustainable growth of the Indian economy.”
Following this, even foreign agencies that provide ESG rating services will have to get SEBI certification if they want to provide services to entities within India. Before this, Crisil was providing ESG ratings as part of its overall rating services.
ESG scores indicate a company’s sustainability and ethical practices, guiding asset managers and investors in selecting companies that meet their ESG criteria.
Gurpreet Chhatwal, Managing Director, CRISIL Ratings, said: “The ESG scores, which will henceforth be called ‘ESG ratings’, have already found traction among market participants. These are based on a unique India specific framework that factors in nuances at the sectoral level, while being guided by global best practices. The process includes analysis of more than 500 unique data points across the environmental, social and governance aspects for each company.”
Sebi, in its order on July 5, 2023, said: “On and from the date of this regulation coming into force, no person shall act as an ESG rating provider unless it has obtained a certificate from the Board. Provided that a person acting as an ESG rating provider on the date of this regulation coming into force, may continue to do so for a period of six months from the date of this regulation coming into force or such other period as may be specified by the board, or if it has made an application for grant of a certificate for registration within the specified period, till the disposal of such application.”
Rating methodology as per Sebi
Sebi has established two rating entity categories based on their financial status and roles. The goal was to guarantee transparent, practical, accurate methodologies aligned with the Indian environment.
As per Sebi, the accredited rating agency is required to publish its evaluation methodology for all ESG ratings on its official website. This disclosure must strike an appropriate balance between transparency and the protection of proprietary or confidential information within these methodologies.
Additionally, it must clearly delineate the proportional weight assigned to each category — environmental, social, and governance factors — in the ESG ratings as well as detail the significance attributed to overarching themes or critical issues within each respective category.
Besides, the principal shareholder of an ESG rating agency is mandated to retain a minimum ownership interest of 26% in said agency for at least five years subsequent to receiving regulatory approval.
