Indian capital markets regulator proposes tougher ESG rules

India’s capital market watchdog has proposed tougher environmental, social and governance rules in a bid to minimize the risk of greenwashing and misuse of ratings by companies.

In a consultation paper released on Monday, the Securities and Exchange Board of India sought to regulate providers of ESG ratings, mandate disclosures and compel listed companies, registered funds or index providers to use only these accredited ESG raters. He also proposed a pay-per-subscriber model, which contrasts with that used by traditional credit rating agencies where the bond issuer pays a commission.

“The increasing use of these unregulated ESG rating providers in securities markets raises concerns about the potential risks it poses to investor protection, market transparency and efficiency, risk pricing and the capital allocation, among others,” Sebi’s document said. “As a result, a need has been felt not only by users of ESG ratings (typically mutual funds, alternative investment funds, etc.), but also by companies and index providers for a framework appropriate rating.”

Public comments were invited until March 10.

Amid growing concerns about climate change and with many countries, including India, committing to mitigating this challenge, Sebi’s paper says sustainable finance is set to gain prominence, which will drive demand for more. products and ESG ratings.