India’s capital markets regulator has launched a comprehensive review of the country’s regulatory framework governing environmental, social and governance (ESG) rating providers, signalling a new phase in the evolution of sustainable finance oversight in one of the world’s fastest-growing investment markets.
The Securities and Exchange Board of India (SEBI) announced the formation of a dedicated working group tasked with evaluating the rules that currently govern ESG rating providers (ERPs). The initiative reflects growing recognition among regulators globally that ESG ratings — now widely used by investors to guide capital allocation — require stronger transparency, methodological clarity and regulatory consistency.
The review follows feedback from market participants and stakeholders who indicated that India’s existing framework, introduced in 2021, would benefit from refinement as ESG investing matures and international standards evolve.
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ESG Ratings Integrated into Regulation in 2021
That move marked a significant step for India’s sustainable finance architecture. By formally recognising ESG ratings within securities regulation, SEBI aimed to improve the credibility, governance and accountability of ESG assessments used in investment decisions.
However, the ESG data ecosystem has expanded rapidly since 2021. New providers have entered the market, ESG methodologies have diversified and investor reliance on sustainability scores has intensified. These developments have exposed gaps in consistency, comparability and disclosure practices — challenges now being addressed through the new review.
Stakeholder Feedback Drives Regulatory Update
SEBI indicated that the decision to reassess the ESG ratings framework was prompted by extensive feedback from issuers, investors, rating providers and other market participants.
Stakeholders highlighted the need for clearer disclosure of rating methodologies, stronger governance standards and improved comparability across ESG scores. Divergent rating approaches among providers have become a global concern, with the same company often receiving significantly different ESG assessments depending on the methodology applied.
Such variability can undermine investor confidence and complicate capital allocation decisions, particularly for institutional investors integrating ESG factors into portfolio strategies. By initiating a regulatory review, SEBI is responding to these concerns and signalling its intent to strengthen the reliability of sustainability data in Indian markets.
India Aligns with Global ESG Oversight Trend
India’s review reflects a broader international shift toward formal regulation of ESG ratings providers. Over the past year, regulators in the European Union, the United Kingdom and other major markets have introduced or proposed frameworks to oversee ESG data and rating agencies more closely.
These initiatives stem from the recognition that ESG ratings increasingly influence investment flows, index inclusion and corporate reputation, yet often lack consistent standards or transparency. Regulators are therefore seeking to ensure that ESG ratings meet similar governance and disclosure expectations as traditional financial ratings.
International guidance has also played a role. In 2021, the International Organization of Securities Commissions (IOSCO) emphasised the need for greater transparency in ESG ratings and data products. IOSCO recommended that regulators require providers to disclose methodologies, manage conflicts of interest and ensure data quality — principles now being incorporated into national regulatory frameworks.
By reviewing its ERP rules, India is positioning itself within this emerging global regulatory architecture.
SEBI Working Group to Evaluate Framework and Propose Reforms
The newly established SEBI working group will bring together representatives from across the ESG ecosystem, including issuers, investors, ESG rating agencies and technical experts.
Its mandate includes examining the existing ERP framework, assessing stakeholder feedback and evaluating international regulatory developments. Based on this analysis, the group will recommend policy and regulatory measures aimed at strengthening transparency, reliability and comparability in ESG ratings.
The review is expected to focus on several core areas: disclosure requirements, governance standards, methodology transparency and conflict-of-interest management. These elements are widely regarded as central to ensuring the credibility of ESG assessments.
SEBI said the working group’s recommendations will guide potential updates to the ERP regulatory framework once submitted to the regulator.
Stronger ESG Ratings Seen as Key to Investor Confidence
A central objective of the review is to enhance investor confidence in ESG ratings used to guide capital allocation.
Institutional investors increasingly rely on ESG data to evaluate risk exposure, sustainability performance and long-term value creation. However, inconsistent methodologies and limited transparency can weaken the usefulness of ESG ratings as decision-making tools.
By strengthening regulatory oversight, SEBI aims to improve the reliability and comparability of ESG scores. More transparent methodologies and clearer disclosures would allow investors to better interpret ratings and integrate sustainability considerations into portfolio analysis.
Improved ESG data quality is also expected to support fiduciary obligations among asset managers, who face growing expectations to demonstrate responsible investment practices.
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Implications for ESG Rating Providers and Companies
The review is likely to have significant implications for ESG rating agencies operating in India.
Providers may face stricter governance requirements, enhanced disclosure obligations and clearer expectations around methodology design and conflict management. While this could increase compliance burdens, it may also strengthen the credibility and market acceptance of ESG ratings.
Companies subject to ESG evaluation may also experience changes. More standardised disclosure expectations and clearer rating criteria could reduce variability in ESG scores and improve transparency around sustainability performance. This may help issuers better understand how they are assessed and how improvements can influence ratings.
For both providers and issuers, a more consistent regulatory framework could reduce uncertainty and improve market trust.
ESG Ratings Becoming Central to Global Finance
SEBI’s review occurs at a time when ESG ratings are becoming deeply embedded in financial decision-making worldwide.
Asset managers increasingly integrate ESG metrics into portfolio construction, risk management and stewardship strategies. Sustainable investment funds, ESG-linked lending and sustainability-aligned indices all rely on ESG data to guide allocation decisions.
As ESG considerations move into the core of financial analysis, the governance of ESG data providers becomes more critical. Weaknesses in rating transparency or methodology can affect investment outcomes and capital flows across markets.
India’s initiative therefore reflects a recognition that ESG ratings now play a systemic role in financial markets rather than a peripheral analytical function.
India Positions Sustainable Finance within Global Standards
By reassessing its ESG ratings framework, India is aligning its capital markets with evolving global sustainability governance standards.
International investors increasingly seek consistency in ESG data across markets. Alignment with global best practices can facilitate cross-border investment and strengthen India’s attractiveness as a destination for sustainable capital.
The review may also enhance India’s role within the global sustainable finance ecosystem. Emerging markets are playing a growing role in climate investment and sustainability-linked finance, making credible ESG frameworks essential for attracting international capital.
Strengthened oversight of ESG ratings can therefore support both domestic market development and global investment integration.
Broader Signal for Emerging Market ESG Regulation
SEBI’s move carries significance beyond India’s borders. Many emerging markets face similar challenges in ESG data governance, including limited standardisation, varying methodologies and evolving disclosure requirements.
India’s regulatory review may serve as a model for other jurisdictions seeking to strengthen ESG ratings oversight while supporting sustainable finance growth. By balancing transparency, market development and international alignment, regulators can improve trust in ESG data across developing markets.
As sustainable investment expands globally, emerging economies are increasingly expected to adopt robust ESG governance frameworks. India’s initiative contributes to this broader transition.
Outlook:
The next phase of India’s ESG ratings evolution will depend on the recommendations emerging from SEBI’s working group.
These proposals will likely shape the future structure of ESG rating oversight in India, influencing methodology disclosure, governance standards and data transparency requirements. The outcome may also determine how investors integrate ESG factors into Indian portfolios and how companies approach sustainability reporting.
If implemented effectively, the review could establish stronger benchmarks for ESG data quality and comparability in Indian markets. It may also reinforce India’s position within the global sustainable finance landscape as ESG investing continues to expand.
Ultimately, SEBI’s initiative reflects a broader transformation in financial governance. As ESG considerations become integral to investment decision-making worldwide, regulators are increasingly tasked with ensuring that sustainability metrics are credible, transparent and reliable.
India’s review signals that ESG ratings are no longer peripheral analytical tools — they are becoming a regulated component of modern financial architecture.
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By: Rosemary Wambui
26th February, 2026
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