SEBI Guidelines on ESG Rating Withdrawals

On April 29, 2025. the Securities and Exchange Board of India (SEBI) issued clarifications and procedural changes to strengthen the framework governing Environmental, Social, and Governance (ESG) Rating Providers (ERPs). These clarifications complement the Master Circular for ERPs by specifying various procedural/disclosure requirements and obligations regarding withdrawals of ESG Ratings from securities and/or entities.

Existing Guidelines

Regulation 28M of the SEBI (Credit Rating Agencies) Regulations, 1999 (CRA Regulations) provides inter alia that:

• an ERP may withdraw an ESG rating only in certain cases (e.g., winding up, merger) or as per its disclosed internal policy.
• withdrawal policies must be published on the ERP’s website.
• if a rating is withdrawn, a final rating and clear reasons for the withdrawal must be provided.

While this position is fairly straightforward, several ERPs faced challenges in aligning the norms for ESG ratings’ withdrawal. In this backdrop, SEBI has now issued additional guidelines outlining the procedure for such withdrawals in a more detailed manner.

Clarifications on Withdrawal of ERP Ratings

The SEBI Circular titled “Clarificatory and Procedural changes to aid and strengthen ERPs” (ERP Circular) addresses the ERP withdrawal challenges by bifurcating the procedure of withdrawals between the “Subscriber-Pays” model, (revenue from subscribers) and the “Issuer-Pays” model, (revenue from the rated entity itself).

In this regard, the following conditions were specified:

• Subscriber-Pays Model:
  • No Active Subscribers: ESG ratings can be withdrawn if there are no active subscribers at the time of withdrawal except for ratings linked to broader indices (such as Nifty 50), which cannot be withdrawn while the index continues to have subscribers
  • BRSR Compliance: Withdrawal is permitted if the rated company fails to provide a valid Business Responsibility and Sustainability Report (BRSR).
• Issuer-Pays Model:
  • For Security Instruments: Withdrawal of a rating is allowed if the security has been rated for the longer of (i) three years, and (ii) 50% of the security’s tenure since issue. However, the rating agency needs to obtain a no-objection certificate from 75% of bondholders by value.
  • For Issuers/Entities: In this case, the ERP may withdraw the rating if they having rated the issuer/ entity continuously for three years.

Disclosures, Audit and Governance

• Disclosures in “Subscriber Pays” Model: – For ERPs following “Subscriber Pays” Model, the ERP Circular specified that detailed rating reports can only be shared with their subscribers and shall not be disclosed on their website. The ERP Circular also consists of the standards for clarification to be provided by the ERP to the rated entity/issuer, balancing the minimum information that is to be provided while maintaining confidentiality of the intellectual property of ERPs.

Nevertheless, ERPs must still disclose the ESG ratings they assign on their website in the following format:

In this regard, the rated entity/issuer has the right to provide its comments on the ESG Rating Report in accordance with a standardised format devised by the ESG Rating Provider Association.

• Disclosures vis-à-vis Stock Exchanges: For ESG ratings of entities/issuers, the stock exchange where such issuer is listed is required to prominently disclose the ESG rating on its website under a separate tab or section on the listed company’s page. Similarly, for ESG ratings of debt securities, the stock exchange where the security is listed must display the ESG rating under a dedicated tab or section on the specific security’s page. These disclosures must adhere to the following standardized format: