Introduction

In recent years, Environmental, Social and Governance (ESG) considerations have transitioned from being aspirational sustainability metrics to material financial indicators for listed entities. The Securities and Exchange Board of India (SEBI), recognising the growing significance of ESG performance in investor decision-making, has progressively integrated ESG disclosures into the regulatory architecture governing listed companies.

While ESG reporting under the Business Responsibility and Sustainability Report (BRSR) framework has already been mandated, SEBI has now turned its attention to ESG ratings i.e., third-party assessments of a company’s environmental and social footprint and governance standards. The central issue emerging for listed companies is whether such ESG ratings or revisions require disclosure under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), particularly Regulation 30.

Statutory Framework

(a) Regulation 30 of the LODR Regulations

Regulation 30 r/w Schedule III of the LODR Regulations mandates disclosure of:

“New Rating(s) or Revision in Rating(s)”

Traditionally, this clause has been invoked for credit ratings assigned by registered credit rating agencies (CRAs). The intent is to ensure that any change in a company’s creditworthiness that may materially influence investor decisions is promptly communicated to the market.

(b) SEBI Master Circular for compliance with the provisions of the LODR Regulations by listed entities

The SEBI Master Circular for Compliance with LODR Regulations dated November 11, 2024 consolidated several disclosure requirements and specifically clarified that the requirement of disclosing the rating is also applicable on the ESG ratings obtained from SEBI registered ESG Rating Providers (ERPs). The circular envisages such disclosure as part of the overall transparency framework, akin to credit rating disclosures.

System-Driven Disclosure Mechanism for Credit Rating and ESG Rating

To promote transparency, efficiency, and ease of compliance for listed entities, the SEBI and the Stock Exchanges have introduced a system-driven disclosure mechanism for certain filings under the LODR Regulations.

Under this framework, effective August 2, 2025, rating data submitted by CRAs and ERPs will be automatically consumed and published on the respective Stock Exchange websites through designated links.

CRAs and ERPs are required to log in to the designated exchange portal, fill the prescribed Excel format, and upload the relevant rating data. Once submitted, the information will be auto disseminated on the Exchange’s website.

This initiative is expected to streamline the disclosure process by enabling automatic transmission of information from CRAs and ERPs to the Stock Exchanges, thereby minimizing manual intervention and ensuring timely, accurate, and transparent public dissemination of critical information.

It is, however, important to note that until expressly specified by SEBI or the Stock Exchanges, listed entities shall continue to make disclosures in PDF format in accordance with the existing LODR requirements.

Registration of ESG Rating Providers (ERPs)

Pursuant to the SEBI (Credit Rating Agencies) (Amendment) Regulations, 2023, and the subsequent ESG Rating Providers Framework (2023), any person providing ESG ratings to listed entities in India must be registered with SEBI as an ERP.

These rating providers may issue:

1. Solicited ESG Ratings – obtained at the request of the rated company, often for investor communication or sustainability-linked financing; and
2. Unsolicited ESG Ratings – issued by the ERP based solely on publicly available information, without engagement or participation from the rated entity.

Only SEBI-registered ERPs are authorised to issue such ratings for Indian entities.

Obligation to Disclose ESG Ratings

The SEBI Master Circular and LODR Regulations, read harmoniously, imply that ESG ratings are to be disclosed in the same spirit as credit ratings. However, the trigger point for disclosure must be interpreted with due regard to the purpose and control of the information. Following principle can be applied while deciding whether listed entities are required to disclosure all the ESG ratings (solicited and unsolicited):

• Where the listed entity itself engages an SEBI-registered ERP to assign an ESG rating (a solicited rating), such rating and any subsequent revision should be disclosed to the stock exchanges in accordance with Regulation 30, within 24 hours of receipt.

Example: If a listed manufacturing company commissions an ESG rating from a SEBI-registered ERP as part of a sustainability-linked loan negotiation and the ERP assigns a “BBB (ESG)” rating, the company must disclose the rating and any later revision therein.

• However, where the ERP independently rates the company using publicly available data i.e. unsolicited rating, and the company neither participated in nor consented to such evaluation, there should be no disclosure requirement.

This interpretation is consistent with the underlying rationale of Regulation 30 ensuring transparency in information that emanates from or is controlled by the listed entity. A company cannot be made liable to disclose third-party opinions issued without its engagement or participation.

This distinction mirrors SEBI’s long-standing approach in the context of credit ratings, where unsolicited credit ratings do not attract mandatory disclosure obligations.

Unsolicited ESG Ratings:

While SEBI’s intent to enhance ESG transparency is commendable, mandatory disclosure should logically attach only to information created under the company’s control i.e., solicited ratings. Requiring disclosure of unsolicited ESG assessments would:

• Impose undue burden on listed entities to track multiple independent rating publications, and
• Potentially amplify inconsistent or misleading data in the public domain.

A balanced approach of disclosing only solicited ESG ratings and revisions would aligns with both Regulation 30 materiality principle and the practical realities of India’s evolving ESG landscape.

Rationale for Disclosure Requirement

The disclosure of ESG ratings is driven by the same investor protection and transparency objectives underpinning credit rating disclosures:

1. Market Efficiency – ESG ratings are increasingly factored into investment decisions, especially by institutional investors adhering to sustainable finance mandates.
2. Comparability – Consistent disclosures enable stakeholders to benchmark companies within an industry based on uniform ESG metrics.
3. Accountability – Disclosure of solicited ESG ratings ensures companies are accountable for sustainability commitments made to investors and lenders.
4. Mitigation of Greenwashing – Public disclosure allows investors to assess the credibility of claims and ratings, thereby deterring superficial ESG positioning.