Indian ESG ratings and financial services firm CRISIL is in the process of setting up an industry association for rating providers that have acquired operations in the country, according to documents filed with the National Stock Exchange of India this week.
The documents show that the new organization will be called the Association of ESG Rating Providers and will be registered as a private company. CRISIL will contribute Rs 25,000 crore (US$297 or €270) as collateral in the event of the group’s liquidation.
According to CRISIL, the association will act as “a common platform for industry engagement with the Securities and Exchange Board of India (SEBI) and other regulators.”
It also aims to promote the interests of ESG rating providers, represent them in “regulatory or other forums” and improve the understanding of ESG ratings in the market.
CRISIL expects the organisation to be formally established within the next six months. The membership will consist of rating providers registered with SEBI.
Responsible investor has contacted CRISIL to get further details about the association.
The development follows SEBI’s introduction of a mandatory regulatory regime for ESG ratings in 2023. India is one of only two major countries, along with the EU, to have introduced binding rules for the market following a call from global regulatory forum IOSCO in 2021.
However, concerns have been raised about certain elements of the regulations that go beyond the scope of the IOSCO recommendations, such as the requirement for providers to “consider ESG aspects relevant to the Indian market in a manner determined by SEBI from time to time”.
An “indicative” list of metrics provided by SEBI that meet this target include, among others, the number of jobs created in smaller towns, the level of CSR spending and the percentage of dissenting votes at annual general meetings.
The local regulations are directly linked to the withdrawal of global ESG rating providers from the Indian market, most notably CRISIL parent company S&P, which said last month it would stop providing services to Indian users “following a review of SEBI regulations.”
ESG giant Sustainalytics also announced its exit at the end of 2023 after conducting “a careful assessment of SEBI’s recently adopted new eligibility requirements.”
S&P became the majority shareholder of CRISIL after acquiring a 58.5 percent stake in 2005. The US credit rating and data giant currently holds 66.6 percent of the company’s shares.
Local providers only
All nine rating agencies that registered with SEBI for business operations in India by early July are based in India.
The registered entities are: CRISIL, CARE ESG Ratings, ESG Risk Assessments and Ratings, GlobeTrend Climate Impact, Institutional Investor Advisory Services, National Stock Exchange unit NSE Sustainability Ratings and Analytics, PGS Impact, Pragati Development Consulting and SES ESG Research.
MSCI is not yet on the list, but has already been selected for the RI that the company will continue to serve Indian customers and comply with all relevant regulations.
Figures close to the Indian government have previously criticized Western dominance in the ESG sector. Last year, a government policy adviser said in a Bloomberg profile that “the emergence of a new group of exclusively Western agencies to monitor ESG goals is problematic.”
RI has contacted ESG Book, FTSE and ISS ESG regarding their stance regarding registration with SEBI but has not received a response at the time of publication.
