What Happened
- The Securities and Exchange Board of India (SEBI) constituted a multi-stakeholder working group on February 18, 2026 to review the regulatory framework governing ESG Rating Providers (ERPs).
- The review responds to feedback from market participants and stakeholders on the current ERP regime, which was introduced in 2023 when SEBI brought ERPs within the ambit of the Credit Rating Agencies (CRAs) Regulations, 1999.
- The working group includes issuers, investors, domestic and global ERPs, ESG analysts, legal experts, and academic representatives.
- Terms of reference: comprehensive review of the existing ERP framework; examination of international regulatory developments; recommendations to enhance transparency, reliability, and investor confidence; alignment with global best practices for the Indian context.
- The group will submit its report to SEBI with findings and policy recommendations.
Static Topic Bridges
ESG Investing and Rating Providers — Framework and Significance
Environmental, Social, and Governance (ESG) investing evaluates companies on non-financial criteria: environmental impact (carbon emissions, resource use), social practices (labour standards, community relations), and governance quality (board composition, executive pay, transparency). ESG Rating Providers (ERPs) assess these factors and issue ratings that guide institutional investors — pension funds, sovereign wealth funds, mutual funds — in portfolio construction. Globally, ESG assets under management exceeded $30 trillion by 2023; in India, SEBI made ESG ratings a formal regulatory category in 2023.
- SEBI circular (July 2023): brought ERPs under SEBI CRAs (Credit Rating Agencies) Regulations 1999 (with additions)
- Only SEBI-certified entities can operate as ERPs in India
- Major global ERPs: MSCI, Sustainalytics, S&P Global ESG Scores, ISS, Moody's ESG
- India-based ERPs: CRISIL, CARE, ICRA (traditional rating agencies entering ESG space)
- BRSR Core (2023): mandates independent assurance of key ESG metrics for top 1,000 listed companies
Connection to this news: SEBI's decision to review the framework just two years after introducing it signals that the original 2023 framework — which adapted the credit rating model to ESG — may need separate, purpose-built regulation. The inclusion of global ERPs on the working group reflects India's intent to align with international standards while preserving Indian market context.
Business Responsibility and Sustainability Reporting (BRSR) — India's ESG Disclosure Architecture
SEBI introduced the Business Responsibility and Sustainability Report (BRSR) framework in 2021, replacing the earlier Business Responsibility Report (BRR). BRSR requires the top 1,000 listed companies (by market cap) to disclose ESG-related data in structured format as part of their annual reports. In 2023, SEBI added BRSR Core — a subset of 9 key performance indicators (including GHG emissions, water intensity, energy consumption, gender wage parity, and workplace safety) that require mandatory third-party assurance. From FY2026-27, all top 1,000 listed companies must file BRSR reports.
- BRSR launched: FY2021-22 (mandatory for top 1,000 listed companies from FY2022-23)
- BRSR Core (2023): 9 KPIs requiring independent assurance; covers top 1,000 listed companies
- BRSR Core timeline: top 150 companies from FY2023-24; top 1,000 companies from FY2026-27
- Metrics include: GHG (Scope 1 and 2), water consumption, energy intensity, gender pay ratio, safety LTIFR
- International alignment: compatible with GRI, SASB, TCFD frameworks
- Green Credit Program: added as BRSR leadership indicator under Principle 6
Connection to this news: BRSR and ERP regulations are complementary pillars of India's sustainable finance architecture. If ERP ratings are unreliable or inconsistent, the BRSR data that companies disclose becomes difficult to compare — undermining the entire ESG disclosure ecosystem. The working group review addresses this foundational credibility issue.
Greenwashing Risk and Regulatory Challenges in ESG
"Greenwashing" — the practice of making misleading claims about environmental or social performance — is a key regulatory risk in ESG finance. Unlike financial credit ratings (which have decades of methodology standardisation), ESG ratings suffer from divergence: the same company can receive vastly different ESG scores from different providers because methodologies, weightings, and data sources vary. A 2022 MIT study found ESG rating correlation across major providers was only 0.54 (compared to ~0.99 for credit ratings). SEBI's review is driven partly by this reliability gap.
- ESG rating correlation: 0.54 across major global providers (vs 0.99 for credit ratings) — source: MIT study
- Greenwashing risk: ESG-labelled funds may not actually improve environmental/social outcomes
- SEBI action: requires ERPs to disclose methodology, use multiple data sources, avoid conflicts of interest
- International regulators: EU ESMA, SEC (USA) have issued similar ERP oversight frameworks
- India's Securities Law: SEBI Act 1992 gives SEBI power to regulate entities in securities market — basis for ERP regulation
- BRSR value chain: SEBI is expanding ESG disclosures to top 10 value chain partners of listed companies (from 2025)
Connection to this news: The working group's mandate to evaluate international regulatory developments and identify gaps directly addresses the greenwashing and methodology-divergence problems. Its recommendations will likely tighten disclosure requirements and conflict-of-interest rules for ERPs in India.
Key Facts & Data
- SEBI: Securities and Exchange Board of India; established 1992 under SEBI Act, 1992
- ERP regulatory framework: introduced 2023 — ERPs brought under CRAs Regulations 1999 (amended)
- Working group constituents: issuers, investors, domestic + global ERPs, ESG analysts, legal experts, academia
- BRSR Core mandatory for top 1,000 listed companies: from FY2026-27
- BRSR Core KPIs (9): GHG Scope 1+2, energy intensity, water consumption, waste generation, gender pay ratio, safety LTIFR, and others
- ESG global AUM: exceeded $30 trillion (2023 estimate)
- ESG rating correlation across providers: ~0.54 (vs ~0.99 for credit ratings)
- India's domestic ERPs: CRISIL, CARE, ICRA, Acuité Ratings & Research
- SEBI Act 1992: legal basis for ERP regulation in India
- Green finance: Green Credit Program, Green Bonds framework (SEBI, 2023), Sovereign Green Bonds (RBI, 2023)