SEBI Sets New Rules For ESG Rating Withdrawals

In a major policy initiative to tighten the regulation of India's sustainability disclosures, the Securities and Exchange Board of India (SEBI) has recently issued a new circular dated April 29, 2025, detailing certain conditions under which Environmental, Social, and Governance (ESG) ratings can be withdrawn. These updated standards are intended to meet the evolving complexities of ESG reporting and bring India's ESG system closer to standardized credit rating standards, in keeping with a larger global trend towards regulatory adjustment.

The updated guidelines are timely, given mounting global pressure for ESG disclosures, with various stakeholders—from investors to rating agencies—questioning the consistency, comparability, and accountability of such evaluations. SEBI’s move is also in response to feedback from ESG rating providers who have cited operational hurdles and the lack of clarity around rating withdrawals as major challenges. SEBI Chairperson Tuhin Kanta Pandey recently acknowledged these issues, noting that the regulator is actively reviewing the ESG disclosure framework amid growing complaints about the burdensome nature of environmental, labor, and social reporting requirements.

Under the new rules, SEBI has brought in distinct provisions for subscriber-pays and issuer-pays models, defining the rules for withdrawal of ESG ratings in both cases.

In the subscriber-pays model—where the rating is paid for by investors or other stakeholders—the ESG rating can be withdrawn under two main conditions. First, if there are no active subscribers to the rating during the proposed withdrawal, and second, if the rated company does not submit a valid Business Responsibility and Sustainability Report (BRSR), which is a mandatory sustainability disclosure in India. But a significant caveat exists for ESG ratings that are included in popular indices like the Nifty 50. Such ratings cannot be withdrawn if the index remains actively subscribed, thus protecting the integrity and salience of index-based ESG scores.

For issuer-pays models—where the rated party itself pays for the ESG rating—SEBI has imposed stricter requirements. ESG ratings in this model can only be withdrawn if the security has been rated for a minimum of three years or at least 50 percent of its tenure, whichever is longer. Additionally, the rating agency must obtain a no-objection certificate from bondholders representing at least 75 percent of the total value. For the ESG ratings given at the company level, the regulator has permitted withdrawals without bondholders' approval, subject to the condition that the company must have had a continuous rating for three years.

All withdrawals of the ratings should meet the internal regulations of the provider of the ESG rating, and such rules should be effectively disclosed on the official website of the provider. In addition to this, SEBI has particularly banned the re-redistribution of withdrawn ESG ratings to assure that old and non-compliant data is not still circulating through the investment stream.

The new framework also introduces a rise in ESG-related transparency for investors. SEBI has instructed stock exchanges to give high visibility to ESG ratings on listed company profiles and individual security pages. This move is likely to improve visibility for stakeholders and promote higher corporate accountability in sustainability issues.

India's regulatory reforms arrive at a timely juncture when global ESG norms are in the midst of change. Globally, regulatory bodies like the European Commission and the United States Securities and Exchange Commission are in the process of making ESG frameworks more accurate, greenwashing-proof, and investor-protective. India, under the leading edge taken by SEBI, is also falling in line with the international movement, reaffirming the commitment towards authentic and consistent ESG reporting norms.

Moody's Ratings had earlier identified India as a high-risk jurisdiction on both environmental and social criteria, highlighting the need for strong and enforceable ESG protocols. With the adoption of these new guidelines, India hopes to close the credibility gap in ESG ratings and emerge as a responsible actor in the changing global sustainability paradigm.

These new rules come into effect immediately and are likely to have a far-reaching impact on how ESG ratings are granted, tracked, and revoked across Indian markets. For investors, businesses, and rating agencies as well, the step represents a watershed moment for India's governance of sustainability, affirming the importance of transparency, compliance, and long-term commitment to ESG principles.