MSCI and LSE among 11 Companies in the race to register as ESG rating providers

Eleven companies, including New York-based index provider MSCI and financial services giant London Stock Exchange Group (LSE), have submitted applications to the Securities and Exchange Board of India (SEBI) to become Environmental, Social, and Governance (ESG) rating providers in India.

Among these applicants are proxy advisory firms IIAS and SES, along with credit rating agencies Crisil and Care, responding to the rising demand for assessing businesses based on non-financial criteria.

This surge in applications follows SEBI’s amendment of its credit rating agency regulations last July to include provisions for regulating ESG Rating Providers (ERPs), aiming to enhance transparency in the ESG rating process.

Applications were submitted between September and January, with approvals expected in the coming months. SEBI’s move towards regulating ESG rating firms addresses concerns over inconsistent ratings due to opaque methodologies. To enhance transparency, Sebi mandates disclosures in ESG rating reports, including methodology explanations, historical ratings, and pillar-wise scores.

To address the conflicts of interest, SEBI requires agreements between rating agencies and rated companies, establishing standard clauses around rights, liabilities, and fees. This move aligns with regulations for credit rating agencies, distinguishing between ‘issuer-pays’ and ‘investor-pays’ models, each catering to different stakeholders’ interests and concerns.