Clarificatory and Procedural changes to aid and strengthen ESG Rating Providers (ERPs)
Summary
This circular clarifies procedural changes for ESG Rating Providers regarding rating withdrawals, website disclosures, and internal audit requirements. It introduces specific conditions for withdrawing ratings based on the business model and mandates stock exchanges to prominently display ESG ratings. Additionally, it grants a two-year transition period for Category-II ERPs to comply with governance and internal audit norms.
Text
ERPs may withdraw ratings under specific conditions aligned with credit rating norms, varying by subscriber-pays or issuer-pays models.
For Subscriber-Pays models, an ERP may withdraw a rating provided there are no subscribers for the rating as on the date of withdrawal.
Where the rated entity/instrument is part of a rating package continuing to have subscribers, such rating may not be withdrawn.
Once withdrawn, the ERP shall ensure that such withdrawn rating is not made available to any subscriber in future.
The ERP may withdraw the rating for an issuer/rated entity in case of non-availability of the Business Responsibility and Sustainability Report (BRSR).
In case of rating of a security, the ERP may withdraw subject to continuous rating for 3 years or 50% of tenure (whichever higher) and NOC from 75% bondholders by value.
In case of rating of an issuer/entity, the ERP may withdraw subject to having rated the issuer/entity continuously for 3 years.
ERPs following a Subscriber-Pays model shall disclose ESG ratings on their website in a specified format but may share detailed rationales only with subscribers.
Rated entities may provide comments in a standardized format; ERPs must disclose these standards on their websites and share them with issuers.
The stock exchange where an issuer is listed shall prominently disclose the ESG rating on its website under a separate tab/section on the listed company’s page.
The stock exchange where a debt security is listed shall prominently disclose the ESG rating on its website under a separate tab/section on the listed security’s page.
The requirement to conduct internal audit shall become effective for Category-II ERPs after a period of two years from the date of issuance of this Circular.
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Source: SecMarx — Clarificatory and Procedural changes to aid and strengthen ESG Rating Providers (ERPs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.