Sebi has approved CRISIL ESG Ratings & Analytics as a Category 1 provider of ESG ratings.

CRISIL, which began its ESG scoring business in 2021, will transfer its over 1,000 companies across 65 sectors to its subsidiary, CRISIL ESG Ratings. ESG scores indicate a company’s sustainability and ethical practices, aiding asset managers and investors in selecting companies that meet their ESG criteria.

Following the development, foreign agencies offering ESG rating services to Indian entities must obtain SEBI certification. CRISIL previously provided ESG ratings as part of its general rating services.

Sebi’s order on July 5, 2023, mandates that individuals cannot act as an ESG rating provider without a certificate from the Board. However, they can continue acting for six months or until their application for a registration certificate is disposed of.

Gurpreet Chhatwal, Managing Director, CRISIL Ratings, said, “The ESG scores, which will henceforth be called ‘ESG ratings’, have already found traction among market participants. These are based on a unique India specific framework that factors in nuances at the sectoral level, while being guided by global best practices. The process includes analysis of more than 500 unique data points across the environmental, social and governance aspects for each company.”

Amish Mehta, Managing Director and CEO, CRISIL Ltd, said, “The approval comes at an opportune time when ESG disclosures have been improving and there is increasing realization in the financial markets of the need for independent ESG ratings.”

It must be noted that Sebi has established two rating entity categories based on financial status and roles to ensure transparent, practical, and accurate methodologies in the Indian environment. Accredited rating agencies must publish their ESG ratings methodology, clearly delineate the proportional weight assigned to environmental, social, and governance factors, and retain a minimum ownership interest of 26% for at least five years.