SEBI’s Master Circular on ESG Ratings: Strengthening Governance and Transparency in India’s Financial Markets

On 11-7-2025, the Securities and Exchange Board of India (‘SEBI’) issued the ‘Master Circular for ESG Rating Providers (‘ERPs’)’ to consolidate all previous regulatory guidelines and introduce uniform standards that enhance the reliability, transparency, and structure of ESG environmental, social, and governance) ratings across India’s capital markets. Theprovisions of this circular came into effect from 11-7-2025.

Key points of Master Circular for ESG Rating Providers:

1. The Master Circular lays down framework mandating ERPs to register through SEBI’s Intermediary Portal under the amended SEBI (Credit Rating Agencies) Regulations, 1999 (‘CRA Regulations’).
2. According to 28H(c) of the CRA Regulations, all registered ERPs are required to obtain prior approval of SEBI in case of change in control, valid for a period of six months.
3. If any SEBI-registered intermediary plans to transfer its business to another legal entity, it will be required to follow proper Rules and get clearance from SEBI.
4. CRA Regulations define ESG ratings (environmental, social, and governance ratings) as the rating products that are marketed as opinions about an issuer or a security, and this Master Circular offers an extensive guidance on the types of ESG ratings and scoring methodologies, which mandatory for ERPs to define.
5. An ERP will offer the following ESG rating products:
   • ESG Rating
   • Transition or Parivartan Score
   • Combined Score
   • Core ESG Rating
   • Core Transition or Parivartan Score
   • Core Combined Score
6. The ERPs will also undertake research activities, pertaining to ESG rating, such as research for economy, environment and ecology, society and social issues, industries and companies, etc.
7. Business models which are to be followed by the ERPs, subject to tailored regulatory and governance requirements, can be categorised as under:
   • Subscriber-pays business model
   • Issuer-pays business model
8. The structured rating process for ERPs will be based on their assessments on reliable, assured data, preferably third-party verified, and disclose the rating methodology used. ERPs are required to conduct periodic monitoring and review of the ratings they have issued to reflect changes in ESG performance or context.
9. Conditions under which ratings can be withdrawn are governed under 28M of CRA Regulations, in case of:
   • Lack of availability of Business Responsibility and Sustainability Report (BRSR)
   • Absence of sufficient data to continue assessment
   • Termination of rating engagement
10. All ERPs are required to establish an ESG Sub-Committee within their Board of Directors. Additionally, Category-II ERPs must also constitute a Nomination and Remuneration Committee (NRC) to oversee transparency in leadership and compensation practices.
11. This Master Circular also introduces mandatory annual internal audits for ERPs under Regulation 28S of the CRA Regulations to assess compliance with regulatory provisions, effectiveness of governance structures, implementation of conflict management policies, and the reliability of operational controls.
12. ERPs need to ensure regulatory compliance and cannot overlap frameworks by the other governing bodies, such as- Reserve Bank of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority, especially when dealing with financial instruments under their jurisdiction.
13. Chapter III includes detailed reporting and disclosure requirements to build user confidence in ESG ratings.
14. While this Master Circular supersedes earlier circulars, the rights, obligations, liabilities, penalties, investigations, and remedies applicable under the old guidelines remain unaffected.
15. For the purposes of this Master Circular, the term ‘Listed entity’ carries the meaning as provided in Regulation 2(1)(p) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.