Transparency or Tokenism? A Critical and Comparative Evaluation of India’s ESG Rating Provider Framework in Light of the April 2025 Withdrawal Clarifications and Global Regulatory Standards

I. Introduction

CRA Regulations define “environmental, social, and governance ratings”, or “ESG ratings”, as the rating of product that is marketed as an opinion concerning an issuer or a security, its ESG profile or characteristics or exposure to ESG risk, governance risk, social risk, climatic or environmental risk, or impact on society, climate and the environment, which are issued by means of a specified ranking system of rating categories, whether or not such are explicitly identified as being an ESG rating^[1]. These ratings have become indispensable in the identification of the sustainability performance and governance practices of a company, which influence investment decisions, encourage responsible corporate practices and act as measurements of durability. However, the lack of standardized procedures, differing quality of data, and non-transparent rating procedures have cast doubt on the credibility and comparability of ESG evaluations on the global scale^[2].

To address these issues, the Securities and Exchange Board of India (SEBI) institutionalised ESG rating operations by the Master Circular on ESG Rating Providers (ERPs) in July 2023^[3]. This framework requires all ESG rating providers (ERPs) in India to register with SEBI, disclose methods, conflict of interest management and increasingly use verified Business Responsibility and Sustainability Report (BRSR) data on listed entities. Additionally, SEBI on 29 April 2025, issued a clarificatory circular, which further refined the ERP framework, especially in relation to the withdrawal of ESG ratings^[4]. The circular standardised the norms of disclosure, and under issuer-pays and subscriber-pays models the condition of withdrawal, and temporarily lenienced the governance requirements of the Category II ERPs, given the complications during the first few years of operation. This clarification helped to clear up the previous ambiguities, aimed to remove arbitrary rating withdrawals and showed the will of SEBI to make the accountability stronger yet provide flexibility to operations to smaller providers.

Scholarly, the same is being undertaken worldwide to formalise ESG regulation. The international bodies’ guidelines of the regulators include the International Organization of Securities Commissions (IOSCO) in its Final Report on ESG Ratings and Data Products (2021) which motivated the regulators to improve transparency, contain conflicts and to implement the systems of supervision of the ESG intermediaries^[5]. The European progress, including the Corporate Sustainability Reporting Directive (CSRD) (2022) and the European Securities and Markets Authority (ESMA) in its 2025 consultation on ESG rating providers^[6].

The ERP regime of India is experimental and progressive in this dynamic international environment. It is based on guaranteed BRSR data and its focus on methodology disclosure reminisce of IOSCO and EU standards. However, loopholes still exist – especially in consistency of rating requirements, validity of assurance measures, and sufficient control over withdrawal discretion. This paper takes a critical look at the appropriateness of the framework of SEBI, particularly its April 2025 clarifications, in raising the transparency, governance, and investor protection or whether it is going to become a mere compliance instrument. This paper places the approach of India in the context of the global trends of regulation and suggests specific legal and policy changes to transform ESG ratings into an effective tool of corporate responsibility.

II. Research Questions

1. How effective is SEBI’s ESG rating framework in ensuring transparency and protecting investors?
2. How does India’s approach compare with global standards set by bodies like IOSCO and the EU?
3. What are the existing challenges, particularly concerning rating withdrawals, assurance, and oversight?
4. What regulatory reforms can strengthen India’s ESG rating governance and foster sustainable investment?

III. Hypothesis

While SEBI’s regulations mark progress in governance and transparency, there remain gaps, especially in supervisory capacity, assurance standardisation, and conflict-of-interest safeguards, that must be addressed to bring India’s framework fully in line with international practices.

IV. Research Methodology

This study uses a qualitative doctrinal and comparative approach to examine how India’s ESG rating framework has developed, how it’s structured, and how effective it is in practice. The core analysis focuses on key legal and regulatory documents issued by SEBI between 2023 and 2025, specifically, the Credit Rating Agencies (Amendment) Regulations, 2023, the Master Circular for ESG Rating Providers (July 2023), the Clarificatory Circular (April 2025), and the Framework for ESG Debt Securities (June 2025). Together, these texts reflect SEBI’s evolving strategy for embedding environmental, social, and governance principles into India’s financial markets. By placing India’s developing framework within the larger framework of international norms, a comparative dimension enhances the study. The EU Regulation (EU) 2024/3005 and IOSCO’s Final Report on ESG Ratings and Data Products (2021) are compared to SEBI’s regulatory initiatives. This comparison shows differences resulting from institutional, developmental, or contextual factors and aids in determining how closely India’s regulations adhere to international norms. Finding the guiding principles of SEBI’s strategy requires a thorough reading of laws and regulations as part of the doctrinal portion of the study. It examines the rules’ coherence and consistency as well as how well they address problems like conflicts of interest, data transparency, and the accuracy of ESG ratings. The comparative analysis then explores how India’s efforts match up with international models, pointing out areas where reforms or better alignment might be needed.

Instead of using numbers or statistical data, this study relies on legal reasoning and normative analysis. The goal is to understand the values and policy goals driving SEBI’s actions. Ultimately, the methodology aims not just to describe the current ESG rating system in India, but to critically evaluate its strengths and weaknesses and suggest practical reforms that could make ESG ratings more transparent, trustworthy, and useful for investors.

V. Literature Review

Research on ESG ratings and their regulation is expanding quickly, and it can be understood through three interconnected lenses. First, empirical research examines the creation of ESG ratings, their impact on financial markets, and the issues brought on by discrepancies among rating agencies. Second, with an eye toward increased transparency and dependability, international policy reports offer frameworks and tactics to enhance the regulation of ESG ratings. Third, national laws and regulations transform these global concepts into workable guidelines and frameworks for handling ESG ratings and the supporting data. With an emphasis on recent regulatory developments in India, this paper integrates insights from all three fields. It closely examines SEBI’s evolving ESG framework, including key updates and clarifications issued in April 2025, to understand how India is responding to global trends while shaping its own approach to sustainable finance.

A. Empirical Insights: Understanding Divergence and Its Implications

A large and growing body of empirical literature emphasises two foundational issues. One is the significant divergence among ESG ratings assigned to the same company by different providers. The seminal study by Berg, Kölbel, and Rigobon dissects this variance into three sources: scope (the aspects measured), measurement (how indicators are assessed), and weighting (how different measures are combined). They show that most divergence owes to differences in measurement and scope, a phenomenon they term “aggregate confusion,” which has been confirmed across diverse studies and international contexts^[7]. Notably, Christensen, Serafeim, and Sikochi find that increasing corporate disclosure can paradoxically widen disagreements rather than unite ratings, underscoring that transparency alone is insufficient to harmonise ESG assessments^[8].

The second critical insight concerns conflicts of interest and biases tied to commercial relationships. Emerging evidence reveals that ESG scores tend to increase for firms commercially linked to parent credit rating agencies, suggesting a commercial bias with potential to influence rating objectivity^[9]. Complementing this, Khan and Serafeim show that only sustainability factors material to a firm’s specific industry meaningfully predict performance, urging rating providers to focus narrowly on material issues rather than broad disclosures^[10]. Cheng, Lou, and Yang further highlight that variations in reporting are largely driven by a lack of independent assurance and inconsistent data vintages, reinforcing calls for stringent regulatory standards around assured data inputs^[11]. For India, this stresses the need for reliable, standardised ESG disclosures, such as those promoted by the Business Responsibility and Sustainability Report (BRSR), paired with robust assurance mechanisms.

While regulatory impact research is still emerging, some promising findings exist. Bikmetova and Pirinsky document that ESG ratings contribute to better issuer sustainability when providers operate under stronger regulatory oversight^[12]. Li and Zhang show that improved alignment in rating methodologies reduces stock return volatility and boosts real-economy efficiency, indicating that sound regulation can yield measurable benefits over time^[13]. Together, these findings support the notion that India’s recent steps to regulate ESG rating providers (ERPs) could have meaningful effects rather than just symbolic value.

B. Global Policy Responses: Guidelines and Frameworks

Policymakers have sought to address empirical problems with a mix of soft law initiatives and binding regulations. In 2021, the International Organization of Securities Commissions (IOSCO) released a comprehensive report that identified opacity in methodologies, conflicts of interest, data quality issues, and market concentration as key risks to the ESG rating ecosystem. It recommended five strategic priorities: enhancing methodological transparency, strengthening governance and internal controls, managing conflicts, assuring data quality, and providing investor-focused disclosures^[14]. These recommendations have set the global baseline against which national ESG regulatory regimes are assessed.

The prevailing regulatory philosophy emphasises a dual approach, improving standardised corporate ESG reporting (the “inputs”) and regulating the intermediaries that translate this data into investor signals (rating agencies and data providers). This two-pillar model should inform and justify all normative claims about SEBI’s role, linking its BRSR framework with the supervision of ERPs.

Among jurisdictions, the European Union stands out for its comprehensive and enforceable approach. The 2022 Corporate Sustainability Reporting Directive (CSRD) standardises disclosures, while the 2024 EU ESG Ratings Regulation establishes a binding authorisation, registration, and supervision regime for rating providers. The European Securities and Markets Authority (ESMA) is tasked with setting methodological transparency standards, managing withdrawal protocols, and overseeing conflict avoidance^[15]. ESMA’s 2025 consultation papers further operationalise these rules, exemplifying the dual “input plus intermediary” model in practice^[16].

C. India’s Regulatory Developments: From BRSR to SEBI’s 2025 Clarifications

India’s regulatory trajectory began with the BRSR initiative in May 2021, which advanced standardisation of certain ESG disclosures. This was followed by the legal incorporation of ERPs within the Credit Rating Agencies framework via amendments in July 2023^[17], complemented by the SEBI Master Circular for ERPs issued shortly thereafter^[18]. The April 29, 2025, clarificatory circular on ESG rating withdrawals^[19], along with the June 5, 2025, ESG debt framework^[20], further refine the practical governance of ESG ratings in India. Collectively, these steps institutionalise a system where standardised and partly assured data inputs (via BRSR) are coupled with rigorous governance and continuity obligations on rating providers.

Practical concerns remain, as noted in practitioner commentaries and law firm analyses, including addressing assurance gaps in BRSR disclosures, clarifying rating withdrawal procedures, and providing targeted relief to certain ERP categories. The April 2025 clarifications addressed many such issues, smoothing the path for implementation and offering a clearer regulatory roadmap.

VI. Conceptual Foundations and International Regulatory Landscape of ESG Ratings

Environmental, Social, and Governance (ESG) ratings serve as crucial information tools that distil a company’s performance on sustainability factors into scores, rankings, or categorical assessments widely used by investors, index providers, lenders, and regulators^[21]. These ratings perform three key functions: signalling firm-level ESG risks and opportunities to financial markets, standardising diverse non-financial data into comparable metrics for portfolio construction and stewardship, and acting as gatekeepers influencing eligibility for ESG-driven funds and green financing frameworks^[22]. Because ESG factors include a broad spectrum of quantitative emissions data, governance structures, and qualitative social outcomes, ESG ratings combine heterogeneous data inputs and modelling choices, making them simultaneously powerful and fragile as decision tools^[23].

Two structural challenges have attracted sustained international regulatory focus. First is methodological heterogeneity: ESG providers differ markedly in how they select, measure, weight, and aggregate indicators, leading to significant divergence in scores for the same firm. Empirical research attributes most of this divergence to differences in scope, measurement, and weighting decisions rather than randomness in data alone^[24]. Second is market concentration and conflicts of interest: a small number of global providers, often credit rating agencies that have expanded into ESG products dominate the market, raising concerns about competitive pressures, pricing asymmetries, and governance of provider conduct^[25]. These dual concerns foster risks for investors and issuers alike, including mispricing of sustainability risks, inconsistent stewardship signals, and opportunities for regulatory arbitrage^[26].

International regulators have thus converged on two complementary pillars of ESG oversight: (A) improving input quality and comparability, and (B) strengthening provider transparency, governance, and oversight. On the input side, the European Union’s Corporate Sustainability Reporting Directive (CSRD) introduces standardised reporting requirements and machine-readable disclosures that aim to produce more consistent and auditable corporate ESG data^[27]. The Organisation for Economic Co-operation and Development (OECD) complements this by mapping metrics across providers and urging harmonisation of indicator definitions to reduce rating noise^[28].

On the intermediary side, the International Organization of Securities Commissions (IOSCO) 2021 report identifies key risks from methodological opacity, product heterogeneity, conflicts of interest, and provider concentration, advocating for enhanced methodological disclosure, governance controls, and user-focused information^[29]. Following this, Europe has implemented the most prescriptive regulatory path: the European Securities and Markets Authority (ESMA) has developed draft technical standards and rules governing ESG rating provider registration, methodology transparency, conflict management, and supervisory reporting^[30].

This global policy landscape offers two practical lessons for national regulators. First, regulating both inputs and intermediaries in tandem is critical: standardised, assured corporate reporting frameworks (such as CSRD, ISSB standards, or India’s BRSR) reduce methodological scatter but cannot replace the need for transparent governance of ESG providers^[31]. Second, regulatory design involves trade-offs: binding regulations like the EU/ESMA model provide enforceability and comparability but require considerable resources and international coordination^[32].

In this context, India’s regulatory approach, linking ESG Rating Providers (ERPs) to BRSR requirements and imposing governance and disclosure mandates under SEBI’s Master Circular (2023), aligns closely with this international convergence toward integrated ESG regulation^[33]. SEBI’s April 2025 clarifications on withdrawal processes further tackle key operational risks, such as data discontinuity, identified by IOSCO and other regulators^[34]. Nevertheless, the effectiveness of India’s regulatory framework will ultimately depend on the precision of disclosure rules, the robustness of input assurance, conflict management mechanisms, and supervisory capabilities, all matters explored in detail in this paper’s comparative and doctrinal analysis.

VII. Evolution of ESG Rating Regulation in India

A. Who Provides and Regulates ESG Ratings in India?

In India, ESG ratings are offered by a mix of domestic firms and international players. Major Indian agencies like CRISIL, CARE Edge Ratings, ICRA Limited, Acuité Ratings, and Infomerics Valuation often double as credit rating agencies, applying their experience to sustainability scoring. Meanwhile, global firms such as MSCI, Sustainalytics (a Morningstar firm), and S&P Global also rate Indian companies, mainly to support international investors and indexes^[35].

For many years, these ESG ratings operated without direct legal oversight. This absence of regulation led to inconsistent methodologies, secretive rating models, and concerns about conflicts of interest. Recognising the risks to market fairness and investor protection, SEBI—the statutory regulator of India’s securities market- started to regulate ESG rating providers formally, bringing them under the SEBI (Credit Rating Agencies) Regulations framework through amendments and a dedicated circular in 2023^[36].

Today, ESG rating providers (ERPs) must register with SEBI and comply with rules on methodology disclosure, conflict management, governance, and mandatory use of assured BRSR data for evaluation. This arrangement creates a regulated environment for a service still delivered by private companies but overseen by a sovereign registry to ensure transparency and integrity^[37].

B. Early Days: Gaps in ESG Disclosure (Before 2021)

Before SEBI’s regulatory push, India’s ESG disclosure environment was mostly fragmented and voluntary. The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities (2011) and SEBI’s Business Responsibility Report (BRR) initiating ESG disclosure for the top 100 firms in 2012 laid early groundwork^[38]. However, the lack of standardized formats, assurance, or strong enforcement meant disclosures were inconsistent and difficult to verify, weakening their usefulness for reliable ratings. SEBI’s consultations repeatedly highlighted that the absence of consistent and assured ESG data was the main obstacle to credible ESG ratings and clearer investor signals^[39].

C. Phase I – Establishing Reliable Corporate ESG Data: The BRSR (2021)

SEBI’s May 2021 rollout of the Business Responsibility and Sustainability Reporting (BRSR) framework was a landmark moment. The BRSR expanded mandatory reporting to the largest 1,000 companies and aligned disclosures with global standards such as GRI and TCFD^[40]. It requires detailed reporting on nine broad ESG principles, including environment, social equity, ethics, and human rights, and introduced the “BRSR Core” indicators requiring third-party assurance to enhance data credibility. Since FY 2022-23, BRSR compliance is mandatory, supplying ESG raters with a standardized, auditable data foundation^[41].

D. Phase II – Boom and Challenges in Private ESG Ratings (2018–2022)

Between 2018 and 2022, India’s ESG rating market grew rapidly, with credit rating agencies diversifying into ESG products, and international players covering Indian firms. Yet, without regulatory clarity, several issues surfaced:

• Divergent methods produced widely varying ESG scores.
• Rating criteria and methodologies were opaque, confusing many investors.
• Conflicts of interest existed because some agencies advised the firms they rated.

These concerns echoed worldwide warnings like those from IOSCO’s 2021 report. SEBI’s January 2022 consultation paper echoed these issues domestically and proposed formal regulations for ERPs^[42].

E. Phase III – Formal Regulation of ESG Rating Providers (2023)

SEBI responded by formally recognizing ESG Rating Providers under amended Credit Rating Agency regulations in 2023^[43]. The July 2023 Master Circular for ERPs set strict rules: registration is mandatory; methodologies, data sources, and rating scales must be disclosed; conflicts must be managed with firewalls between consulting and rating; rating rationales and periodic updates require public release; and boards must oversee governance and transparency including ESG risks^[44]. This shift firmly integrated ESG ratings into India’s regulated financial ecosystem, promoting credibility and investor trust^[45].

F. Phase IV – Refinements and Clarifications (2024–2025)

The Securities and Exchange Board of India (SEBI) issued a clarificatory circular on April 29, 2025, to specify procedural and disclosure requirements concerning ESG rating withdrawals by registered ESG Rating Providers (ERPs). The circular mandates that ESG ratings under the issuer-pays model may only be withdrawn after continuous rating for three years or 50% of the security’s tenure, whichever is longer, along with obtaining a no-objection certificate (NOC) from 75% of bondholders by value. For issuer-level ratings, a minimum of three years’ continuous rating is required before withdrawal. Subscriber-pays ERPs can withdraw a rating only if no subscribers remain for it, except for bundled products like indices, which cannot be withdrawn while subscribers exist. Additionally, ratings may be withdrawn if the issuer fails to file the required Business Responsibility and Sustainability Report (BRSR)^[46].

The circular requires ERPs to disclose withdrawal actions on stock exchanges within one working day, accompanied by a detailed rationale explaining the reasons for withdrawal. Stock exchanges must prominently display these disclosures alongside ongoing ESG ratings for investor awareness. ERPs are also required to maintain archives of rating histories and withdrawal disclosures on their websites for at least ten years to promote transparency^[47]. SEBI postponed certain governance requirements, such as the constitution of an ESG Ratings Sub-Committee and Nomination and Remuneration Committee for Category II ERPs, typically smaller or emerging providers, until April 2027 to account for operational challenges, while holding their boards ultimately accountable for governance oversight^[48].

These measures improve transparency and continuity in ESG ratings by establishing clear withdrawal conditions, mandating prompt investor disclosures and requiring orderly migration of assignments without additional cost during ERP registration surrender or cancellation. Ratings remain valid until client withdrawal or migration completion. Nonetheless, the framework retains significant discretion with ERPs in withdrawal timing beyond minimum tenure and consent requirements, risking inconsistencies in rating stability. The governance leniency for Category II ERPs may reduce uniform oversight, and dependence on issuer-submitted BRSR data introduces external vulnerabilities to rating continuity^[49].

G. Phase V – ESG Ratings and Sustainable Finance Integration (2025)

June 2025 saw SEBI release a framework uniting ESG ratings with sustainable finance, specifically for social, sustainability-linked, and transition bonds (excluding green bonds)^[50]. This integrated framework ensures coherence among issuer BRSR disclosures, ratings by ERPs, and bond labelling. Issuers must provide consistent disclosures covering issuer name, ISIN, sector, ESG ratings and dates, rating agency names, and indicate their business model (subscriber-pays or issuer-pays)^[51].

By weaving data, ratings, and financial products together, this framework aims to boost transparency, reduce greenwashing risks, and build investor confidence. It also aligns India with international ESG finance standards, facilitating sustainable investment growth while ensuring that investors have access to reliable, verified ESG information^[52].

VIII. IOSCO, the EU/ESMA, and India (SEBI): A Comparison

A. IOSCO (Final Report FR09/2021)

In November 2021, the International Organisation of Securities Commissions (IOSCO) released its seminal Final Report on Environmental, Social and Governance (ESG) Ratings and Data Products Providers, bringing global securities regulators’ attention to the burgeoning influence of private ESG rating agencies on financial markets^[53]. The report revealed persistent market failures, including a lack of a clear definition of what constitutes an “ESG rating,” significant methodological opacity characterised by undisclosed data sources, indicator definitions, and aggregation methods, as well as market concentration and uneven coverage^[54]. It sharply highlighted the risk of conflicts of interest where ESG rating providers or their affiliates also deliver consulting, assurance, or index services to the same rated entities^[55].

The response offered by IOSCO was purposely principles-based to suitability the variety of global jurisdictions. It revolved around five remedial pillars, namely: (a) full disclosure of rating procedures with scope, data inputs, materiality approaches, weighting; (b) strong internal governance and quality control with audit trails and independent control; (c) mitigation of conflict-of-interest through functional or structural separation where practicable, or through transparent disclosure; and (d) active regulation where ESG ratings are relevant to securities markets^[56].

Notably, IOSCO also identified the risk that emanates out of discontinuity and rating withdrawals, which may cause information vacuum and market dislocations. Nonetheless, it did not provide specific withdrawal mechanics (including notice periods or centralised registries) so that that information was left to the discretion by these local regulators^[57]. This underscores the practical focus of normative advice and adaptability to local domestic conditions by IOSCO to provide the overlay architecture, but not comprehensive technical regulations^[58].

B. European Union (ESMA)

The European Union assumed a more prescriptive and centralised stance, and converted the principles of IOSCO into binding law as Regulation (EU) 2024/3005 on ESG Rating Activities, adopted at the end of 2024^[59]. This rule not only requires the authorisation and registration of providers of ESG ratings, which should be located anywhere on the EU territory, but also, it necessitates comprehensive disclosures of methodology, and it imposes very strict conflict-of-interest safeguards, such as the functional and organisational separation^[60]. It confers supervisory, investigative, and sanctioning powers on the European Securities and Markets Authority (ESMA) to oversee ESG rating providers^[61].

The EU model has two characteristics. First, it links strict input standardisation with the Corporate Sustainability Reporting Directive (CSRD) that standardises disclosures made by issuers and requires assurance with strict intermediary oversight under the ESG Ratings Regulation. This vertically integrated approach seeks to harmonise both the inputs (company disclosures) and rating outputs to improve comparability^[62].

Second, and crucially for withdrawal and continuity risk, the EU requires rating providers to not only have withdrawal policies but to follow standardised disclosure templates and report withdrawals and significant methodological changes to a centralised registry. ESMA’s technical standards and consultations specify machine-readable, interoperable formats and strict timelines. This unified system enables investors and regulators to track withdrawals across providers in real time, reducing opaqueness and protecting financial stability^[63].

ESMA explicitly advocates for a unified EU oversight model with centralised registration, harmonised disclosure templates, and cross-border supervisory tools to prevent regulatory fragmentation that could undermine comparability^[64]. The withdrawal events are considered to be the fully supervised regulatory events; the providers are required to justify and disclose detailed withdrawal reasons, whereas the ESMA has the authority to examine and impose penalties on the abusive behaviour. The withdrawals are recorded in the centralised registry publicly, creating an audit trail which offsets the systemic risks of sudden rating discontinuation^[65].

It is a prescriptive model that has unmatched transparency and enforcement potential, which greatly reduces the problem of informational asymmetry compared to the principle-based regimes^[66].

C. India (SEBI)

India’s Securities and Exchange Board of India (SEBI) operationalised ESG rating regulation by formally incorporating ESG Rating Providers (ERPs) within the SEBI (Credit Rating Agencies) regime. The July 12, 2023 Master Circular mandates ERP registration, methodology disclosure with minimum content requirements, internal audit and governance structures, and requires ERPs to adopt a single business model (issuer-pays or subscriber-pays, disallowing hybrids)^[67]. ERPs must maintain robust records, publish rating rationales in stipulated formats, and rely progressively on assured Business Responsibility and Sustainability Report (BRSR) data to enhance rating reliability^[68].

The April 29, 2025 Clarificatory Circular is a landmark in global ESG regulation by introducing detailed, operational withdrawal rules. It permits subscriber-pays ERPs to withdraw ratings only when no subscribers remain or when the underlying BRSR data is unavailable, with restrictions maintaining ratings essential to index packages if subscribers persist^[69]. For issuer-pays ERPs, withdrawal requires continuous coverage for three years or 50% of security tenure (whichever is greater) plus no-objection certificates (NOC) from 75% bondholders by value for debt ratings^[70]. Withdrawals must be disclosed at the stock exchange level with standardized rationale templates, reinforcing market transparency.

SEBI’s approach reflects pragmatic balance: combining binding registration and disclosure mandates with thoughtful operational constraints to prevent abrupt rating discontinuities. Transitional relief for smaller “Category II” ERPs on governance timelines acknowledges capacity differences while preserving transparency^[71].

Compared to IOSCO’s principle-based, non-binding guidance and the EU’s tightly supervised centralised model, SEBI’s framework is a hybrid evolving toward maturity. Currently, it lacks ESMA-equivalent machine-readable withdrawal registries and real-time supervisory withdrawal review mechanisms^[72].

D. Convergences and Divergences

Convergences:

• All of these three frameworks prioritise methodology transparency, conflict-of-interest mitigation, and enhanced provider-rated firm dialogue, reflecting a shared governance vision.^[73]
• The “two-pillar” approach—improved issuer disclosures plus strengthened intermediary oversight, underlies IOSCO’s baseline, echoed by the EU’s CSRD + ESG Ratings Regulation and India’s BRSR + ERP model.^[74]
• Recognition of withdrawal risks fosters dedicated provisions: IOSCO flags it as a user concern, the EU embeds withdrawals into formal supervisory lifecycles, and SEBI uniquely introduces granular withdrawal rules operationalizing continuity protections.^[75]

Divergences:

• The EU’s regime is binding, centralized, and prescriptive with ESMA’s oversight and harmonized withdrawal reporting templates, whereas IOSCO offers principles without prescriptive mechanisms, and SEBI combines binding requirements with flexibility and pragmatic concessions.^[76]
• ESMA mandates machine-readable templates, a central registry for methodologies and withdrawals, and real-time supervisory control; SEBI requires methodology publication and exchange-level disclosure but lacks a unified, searchable public ERP and withdrawal registry and permits subscriber-pays ERPs to limit full rationale disclosure to paying clients.^[77]
• SEBI’s detailed withdrawal rules (notice periods, tenure thresholds, bondholder NOC requirements) are more operationally concrete than IOSCO’s principles but do not yet match the EU’s centralized and rapid supervisory review and sanction powers for withdrawals.^[78]
• The EU’s CSR Directive requires mandatory phased assurance of sustainability disclosures, boosting input reliability. SEBI encourages but does not yet mandate uniform assurance for the BRSR Core, which can create variability in data availability and withdrawal justification, affecting rating stability.^[79]

IX. Critical Assessment

A. Strengths of SEBI’s Framework

SEBI has codified the regulation of the ESG ratings by establishing a compulsory registration regime to ESG Rating Providers (ERPs). This action adds regulatory control, accountability, and leads to an increase in trust in the credibility of ratings. The framework establishes explicit conflict-of-interest protections, directing ERPs to decouple issuer and subscriber-pays models and implement governance to avoid undue influence. SEBI also requires the application of certified data of Business Responsibility and Sustainability Reports (BRSR), such that ESG evaluations will be established on standardized, secure corporate disclosures. All these combined enhance the reliability and the institutionality of ESG rating in India.

B. Weaknesses and Gaps

The structure of SEBI has some vulnerabilities that it fails to address in spite of these developments. There is minimal transparency in methods because ERPs may invoke intellectual property issues as a reason not to reveal the information about their assessment models. This is an absence of transparency that limits comparison and may jeopardize investor confidence. A lack of an agreed rating scale also plays a part in the inconsistency between ESG scores, and this makes attempts by investors to make meaningful comparisons difficult. Besides that, ERPs have the discretion of when to withdraw or revise ratings, which could destabilize market continuity. The high dependence on data offered by the issuers makes the framework vulnerable to greenwashing, particularly in instances where the levels of third-party assurance are not identical with companies.

C. Tokenism versus Transparency

The regulatory approach of SEBI can be taken as a significant step towards more organised ESG governance, but the major problems of persistent opacity still make people doubt the extent of this change. The secrecy of their methodologies and permission to soften compliance mandates, especially where a smaller ERP is involved, would be prone to the perception of a token compliance as opposed to a transparent one. The current regulatory balance between the protection of proprietary information and disclosure is favourable to the former. The result of this imbalance could be the constriction of the ability of ESG ratings as agents of meaningful corporate sustainability change.

D. Stakeholder Implications

The Indian ESG rating framework is slowly creating a more transparent and responsible sustainable finance ecosystem, although it is identified to be disproportionately affecting the various stakeholder groups; further reforms are still necessary. Investors get access to more enriched ESG disclosures, but they have difficulty with comparisons of ratings because the methods are opaque. The trend pushes the companies towards improved reporting on sustainability, but the lack of consistency in ensuring it undermines the credibility. Enhanced oversight tools are useful to the regulators but they need to improve on governance to facilitate the same. To ESG Rating Providers, the framework is a fine walk on a tight rope between proprietary innovation and increased transparency needs. The relevance of such tensions is in the standardization of rating scales, intensifying assurance norms, and capitalizing on digital infrastructure to make the structure an effective, inclusive, and reliable pillar of sustainable finance infrastructure in India.

X. Recommendations for India’s ESG Rating Regulation

A. Centralised Public Registry for ESG Rating Providers and Withdrawals

SEBI must create a centralised registry that can be accessed by everybody on its official site. It would contain all the information regarding ESG Rating Providers (ERPs) and periodic summaries of their standardised methodology in machine-readable formats, a list of all operational ratings, and logs of all withdrawals of ratings, including time stamps and standardised reasons. The idea behind this suggestion is based on the unified model of oversight by the European Securities and Markets Authority (ESMA) in the EU, which has necessitated such a central registry to create transparency and assist real-time monitoring by investors, regulatory bodies, and researchers, among others^[80]. It also aligns with IOSCO’s emphasis on transparency and market stability^[81].

B. Mandatory Withdrawal Notification Periods and Data Escrow Deposits

SEBI should require ESG Rating Providers (ERPs) to give a mandatory notice period before withdrawing ratings, for example, 30 calendar days for issuer-pays ratings and 60 days for widely subscribed or index-linked debt ratings. Under this period of notice, ERPs would have to deposit anonymised information employed in the latest rating evaluation in an escrowing service that has been authorised by SEBI. This would make sure that the data is blocked to SEBI and the potential replacement providers so that the market is not destabilised and made to get disturbed. This suggestion goes hand in hand with the concerns that IOSCO has expressed on the risks of rating withdrawals and represents the technical standards of ESMA, which emphasise the continuity and responsible withdrawal practices^[82].

C. Formal Verification of Bondholder No-Objection Certificates (NOCs)

The SEBI must ensure that the validity of the no-objection certificate (NOC) issued by trustees or depositories must be certified in case of debt rating withdrawals that need an issued no-objection certificate (NOC) by bondholders. Also, a cooling-off period, say 14 days need to be put in place before withdrawal comes into effect. As a bondholder, information should be relayed to him during this time via official communications, which are certified by the trustees. This is based on the supervisory practice in the EU finance market that focuses on the protection of minority bondholders and deterring manipulative or unrepresentative approvals^[83].

D. Establishment of an Expedited SEBI Regulatory Continuity Desk

SEBI should establish a specialized unit responsible for swiftly resolving urgent disputes related to ESG Rating Provider (ERP) withdrawals. This unit would also be in a position to issue temporary injunctions such as keeping a rating in place within a 30-day period so as to avoid disruptions that may bring about a disturbance in the market. This mechanism would be run with well-defined procedural guidelines and criteria to provide an effective and fair solution without causing delays, as is common with formal legal courts. The proposal is inspired by the supervisory review frameworks adopted by the European Union which facilitates the timely use of regulatory measures to ensure that market integrity is upheld^[84].

E. Standardization and Phase-In of Mandatory Assurance for BRSR Core Indicators

SEBI should introduce a phased requirement for limited assurance on a defined “BRSR Core” set of ESG indicators, initially targeting the country’s largest listed companies, such as the top 250, within an 18-month timeline. This would enhance quality and comparability of ESG data and decrease the instances of valid grounds of withdrawing ratings based on missing data. This method is consistent with the Corporate Sustainability Reporting Directive (CSRD) of the European Union which integrates a gradual obligatory assurance system to increase the credibility of disclosure and increase investor trust^[85].

F. Cross-Border Cooperation through Memoranda of Understanding (MoUs)

SEBI should actively seek to establish Memorandums of Understanding (MoUs) with ESMA, IOSCO members, and other key securities regulators. These agreements would help in the sharing of data on rating withdrawals, enforcement measures and would allow coordinated oversight of foreign-based ESG rating agencies that cover Indian issuers. This type of international collaboration is needed in order to avoid regulatory arbitrage and make the monitoring more effective in the rapidly globalizing ESG market. This suggestion is guided by the recommendation of IOSCO on the essence of international regulatory cooperation in the efforts of ensuring solid market oversight^[86].

G. Digital Transformation for Machine-Readable ESG Disclosures and Supervisory Analytics

SEBI should invest in and enforce digital reporting standards (like XBRL) that require ESG rating providers to submit their methodologies, rating rationales, and withdrawal notices in machine-readable formats. This would make it easier to analyze things automatically, enable regulators to notice rating abnormalities sooner, and make the process of oversight much more productive. Further, building superior supervisory analytics would be facilitative of a more risk-based and data-driven method of regulation. The rationale behind this suggestion is the attempts undertaken by ESMA to standardise digital reporting that have increased the access to data and the efficiency of supervision in the European market^[87].

XI. Conclusion

The changing ESG rating regulatory environment of India is an indicator of enhanced efforts towards ensuring transparency, accountability, and market resilience on sustainable finance. The recent changes like the 2023 Master Circular of SEBI and the 2025 decisions on rating withdrawals are an indication of a conscious attempt to bring the domestic practices in line with the international standards and at the same time keeping in mind the specifics of the Indian market. Nevertheless, unremitting loopholes in supervisory control, assurance standardization and conflict-of-interest reduction still compromise the validity and practicality of ESG ratings. The solution to these deficiencies is needed to make sure that ESG ratings are substantive tools to be used by investors to make decisions, not symbolic compliance. In the future, India should focus on well-built assurance, increased investor interaction, embrace digital innovation, and develop foreign cooperation. The ESG rating framework can be made the core of the transformation of the Indian financial ecosystem to become more inclusive, transparent, and sustainable with sustained, context-sensitive reforms relying on the best practices globally.