SEBI Is Overhauling How ESG Ratings Work in India: What Every Listed Company and Investor Needs to Know
The Problem With ESG Ratings No One Wants to Talk About
Ask two different ESG rating agencies to evaluate the same company and you will frequently get two dramatically different results. One agency rates a major Indian conglomerate as an ESG leader. Another rates the same company as a laggard. The methodology is proprietary, the data sources are inconsistent, and the investor trying to decide whether to allocate capital to a sustainable fund has no reliable way to compare ratings across providers.
This is not a uniquely Indian problem. Globally, the correlation between ESG ratings from different agencies for the same company hovers around 0.3 to 0.5, a level of inconsistency that would be considered catastrophic in credit ratings but has been tolerated in ESG ratings because the entire field is relatively new. The consequence is real: capital is being allocated on the basis of sustainability metrics that mean different things depending on who calculated them, and greenwashing risks accumulate precisely in the gaps between inconsistent ratings.
India has been grappling with this problem since SEBI first brought ESG Rating Providers into its regulatory framework in 2021 through the Master Circular for ESG Rating Providers, and formally structured that framework through the amendment to the SEBI Credit Rating Agencies Regulations in July 2023. Three years into that structured framework, SEBI has concluded that it needs revision, and on 18 February 2026, it formally constituted a Working Group to undertake a comprehensive review.
What SEBI Has Done So Far
Before examining the 2026 review, it is worth understanding the framework being reviewed, because the gaps it leaves are precisely what the Working Group is now tasked with addressing.
SEBI's 2023 amendment to the Credit Rating Agencies Regulations required any entity seeking to provide ESG ratings in India to obtain a certificate of registration from SEBI. This brought ESG Rating Providers under the same supervisory umbrella as credit rating agencies, with obligations around transparency, methodology disclosure, prevention of conflicts of interest, and periodic accreditation renewal every two years.
The framework also took a position on the business model question that has divided ESG rating regulators globally. SEBI permitted both the issuer-pays model, where the company being rated pays for the rating, and the subscriber-pays model, where investors or other users of the rating pay for access. It explicitly prohibited hybrid models, in recognition of the conflict-of-interest risks that hybrid structures create. The concern is straightforward: an ESG rating agency that is paid by the company it is rating has an inherent incentive to issue favourable ratings, just as credit rating agencies were found to have before the 2008 financial crisis.
The BRSR Core framework, made mandatory for the top 1,000 listed companies by market capitalisation on a phased timeline with full compliance required by FY 2026-27, is the data foundation on which ESG ratings of Indian listed companies are built. From June 2025, SEBI strengthened BRSR requirements by mandating third-party verification and alignment with international standards. ESG Rating Providers are required to base their core ESG rating on BRSR disclosures, with additional assessments and commentaries permitted but not allowed to influence the core rating if based on unverified information.
Despite all of this, market participants have fed back to SEBI that the framework has significant gaps. Ratings remain inconsistent across providers. Methodology transparency is inadequate. The boundary between a core ESG rating based on verified BRSR data and supplementary commentary based on unverified controversy information is not sufficiently clear in practice. And India's framework, while coherent in its own terms, is diverging from developments in the EU and UK that are reshaping global ESG rating standards in ways that matter for Indian companies raising capital from international investors.
The February 2026 Working Group: What It Is Examining
SEBI announced on 18 February 2026 that it has constituted a Working Group to review the regulatory framework governing ESG Rating Providers. The Working Group comprises representatives from issuers, investors and ESG rating users, domestic ESG rating providers, global ESG rating providers, ESG analysts, legal experts, and academia.
According to the official SEBI press release, the Working Group is mandated to undertake a comprehensive review of the existing regulatory framework governing ESG Rating Providers and examine representations and suggestions received from market participants, recommend measures to enhance transparency, reliability, and investor confidence in ESG ratings.
The group is also tasked with evaluating international regulatory developments in the ESG rating space and identifying areas for alignment with global best practices, while factoring in the Indian market context.
The four substantive areas the Working Group is expected to address, based on SEBI's stated mandate and the feedback that triggered the review, are as follows.
Methodology standardisation. The core problem, that two ESG rating agencies can give dramatically different ratings to the same company using different methodologies, cannot be resolved without some degree of standardisation in how agencies assess material ESG factors. The Working Group is expected to examine whether SEBI should mandate common minimum methodology standards, as the EU has done through its ESG Rating Regulation that came into force in 2024, or whether methodology diversity should be preserved but made more transparent.
Conflict of interest rules. The prohibition on hybrid business models was a start, but market participants have raised concerns that even within the issuer-pays and subscriber-pays models individually, undisclosed relationships between rating providers and the companies they rate create subtle conflicts of interest. The Working Group is examining whether additional disclosure requirements or structural separation rules are needed.
International alignment. The EU's ESG Rating Regulation, which came into force in May 2024 and applies from July 2025, requires ESG rating providers operating in the EU to be authorised by ESMA and imposes binding obligations on methodology, transparency, governance, and conflict of interest management. The UK is developing comparable rules. For Indian ESG rating providers with global operations, and for global ESG rating providers operating in India, divergent regulatory requirements create compliance complexity and duplication. SEBI's Working Group is explicitly tasked with examining where India's framework can align with international standards without losing sight of India-specific factors including the BRSR framework and the specific social and governance parameters that are material in the Indian market.
BRSR and rating integration. The relationship between BRSR disclosures and ESG ratings is foundational to how India's framework is designed, but practitioners have identified gaps in how this integration works in practice. Where companies make BRSR disclosures that are broad or inconsistently formatted, ESG Rating Providers struggle to build consistent core ratings from them. The Working Group is expected to examine whether BRSR disclosure templates need to be more granular in specific areas to support reliable ESG rating construction.
What This Means for Companies, Investors, and Rating Agencies
For listed companies: The most immediate practical implication is that BRSR disclosures are about to become more consequential, not less. As SEBI tightens the framework governing ESG Rating Providers, the quality, accuracy, and completeness of BRSR disclosures will directly affect the ESG ratings those providers assign. A company that has treated BRSR as a compliance box-ticking exercise rather than a substantive disclosure document is building rating risk. The Working Group's recommendations are likely to push in the direction of greater granularity and verifiability in BRSR reporting, which means companies need to be investing in the underlying data infrastructure now rather than waiting for the new rules to land.
For investors and asset managers: The review signals that SEBI is taking seriously the concern that ESG ratings in their current form are not reliable enough to support confident capital allocation decisions. The expected push toward methodology standardisation and conflict-of-interest controls should, if implemented effectively, make ESG ratings more comparable and more trustworthy. For funds that currently use third-party ESG ratings as an input to investment decisions, the improved reliability of those ratings will be welcome, but the transition period while the new framework beds in creates its own uncertainty.
For ESG Rating Providers: The review is an explicit signal that SEBI is not satisfied with the current state of the market. Providers that have relied on proprietary methodology opacity as a competitive advantage should expect that opacity to be constrained by new disclosure requirements. Those with operations in both India and the EU or UK face the prospect of navigating two regulatory regimes that may or may not converge. Global providers entering the Indian market will need to factor the evolving SEBI framework into their market entry planning, since operating under the current rules does not guarantee compliance with whatever the Working Group recommends.
How India Compares to the Global Picture
India is moving in step with a global regulatory wave, but each jurisdiction is arriving at similar conclusions through different routes.
The EU's ESG Rating Regulation, now in force, is the most prescriptive framework globally: mandatory authorisation, binding methodology standards, structural conflict-of-interest controls, and direct ESMA supervision. The UK is developing comparable rules through the FCA's voluntary code of conduct for ESG data and rating providers, with mandatory regulation expected to follow. Japan introduced voluntary principles for ESG rating providers in 2022 and is moving toward a more formal framework. The US, characteristically, has taken a more fragmented approach, with SEC disclosure rules focused on investment fund labelling rather than rating provider conduct.
India's approach of building ESG rating regulation into the existing Credit Rating Agency infrastructure, using the BRSR framework as the data foundation, and now undertaking a structured review with genuine multi-stakeholder input, is broadly consistent with where the better-designed global frameworks are heading. The question is whether the Working Group's recommendations will be implemented with sufficient speed and specificity to keep India's framework credible in the eyes of international investors who are simultaneously watching the EU framework develop.
The Working Group is expected to submit its report to SEBI before the end of 2026. Whatever it recommends is likely to form the basis of significant regulatory changes that affect every listed company in India, every fund using ESG ratings as an investment input, and every provider operating in India's sustainability ratings market. Staying ahead of those changes rather than reacting to them is the more defensible position for any business with meaningful ESG exposure.
This Blog is for general informational purposes and does not constitute legal advice. For guidance on SEBI ESG compliance, BRSR disclosure obligations, or sustainability regulatory matters, please contact our team.