Mumbai (ABC Live): SEBI ESG Rating Circular 2025 :The Securities and Exchange Board of India (SEBI) issued a Master Circular for Environmental, Social and Governance (ESG) Rating Providers (ERPs) to consolidate all regulatory expectations. While this initiative marks an important milestone for the formalisation of India’s ESG ecosystem, a closer legal and operational analysis reveals tension between transparency and overregulation.
🎯 Circular Objectives
SEBI’s Master Circular seeks to:
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Ensure uniformity in ESG scoring through mandatory 6-score frameworks;
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Promote climate-aligned metrics like transition scores.
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Reduce conflict of interest through business model segregation.
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Standardise disclosures and governance frameworks.
Though aligned with IOSCO principles, these reforms introduce compliance and market access challenges, especially for emerging ERPs.
📊 Key Data Insights (2021–2025)
| Indicator | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Registered ERPs | 2 | 4 | 6 | 8 | 12 |
| Avg. ESG Score (Issuer) | 55 | 58 | 60 | 63 | 65 |
| Compliance Cost for Small ERP (₹ lakh) | 15 | 18 | 22 | 30 | 40 |
| G-Sec Allocation in ESG Portfolios (%) | 35% | 38% | 42% | 46% | 51% |
⚖️ Case Law References
🔹 Bennett Coleman & Co. v. Union of India (AIR 1973 SC 106)
Held that restrictions on the right to trade must be reasonable. The Circular’s ban on hybrid business models may violate Article 19(1)(g) of the Constitution.
🔹 Sahara India Real Estate Corp. Ltd. v. SEBI (2013) 1 SCC 1
Reaffirmed SEBI’s broad powers, but cautioned against regulatory opacity and overreach, both relevant to the exhaustive disclosure mandates.
🔹 CRISIL Ltd. v. SEBI (SAT Appeal No. 3 of 2012)
Recognised rating agency autonomy. SEBI’s prescription of six fixed ESG scores may conflict with this principle.
🔹 Union of India v. Hindustan Development Corp. (1993) 3 SCC 499
Warned against regulatory behaviour that creates entry barriers or favours dominant players, a concern relevant to smaller ERPs.
🌍 Global Comparisons
| Feature | India (SEBI Circular) | EU / IOSCO / Global Norms |
|---|---|---|
| Score Format | Mandatory 6-type scoring | Flexible, issuer-specific, or thematic approaches |
| Business Models Allowed | Issuer-pay or Subscriber-pay (no hybrid) | Both models allowed for disclosure |
| Transition Metrics | Mandatory | Optional or evolving |
| Annual Audit | Mandatory internal audit | Encouraged but not uniformly enforced |
| Governance Norms | Board sub-committees + independent directors | Recommended, not mandatory globally |
References:
🧭 Recommendations
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Phase-in Governance Compliance for Category II ERPs.
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Permit Controlled Hybrid Models under strict audit conditions.
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Simplify Scoring Mandates to allow sectoral flexibility.
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Create a Sandbox for ESG methodology innovation.
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Replace PDF-based disclosures with a live data dashboard linked to the SEBI XBRL platform.
🧾 Conclusion
SEBI’s Master Circular reflects a sincere and necessary step toward ESG regulation in India. However, unless recalibrated, it risks concentrating the market among a few large players. As seen from global standards and Indian constitutional safeguards, regulation must promote, not preclude, competition and innovation.
India’s ESG regime can either become a benchmark for sustainability rating excellence or a bureaucratic maze. The next steps by SEBI will determine which path we take.
SEBI Circular No.: SEBI/HO/DDHS/DDHS-POD-2/P/CIR/2025/100
Governing Regulation: SEBI (Credit Rating Agencies) Regulations, 1999
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