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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Sustainability Audit, ESG Rating and Emerging Mandates from Government and Regulators

Himalaya Ratings, a SEBI-registered ERP, plans to offer a new product: an ESG Rating of a listed company based only on its Business Responsibility and Sustainability Report core indicators. Which statement best reflects the SEBI approach to the products an ERP may offer?

The product must fit the SEBI-prescribed categories of ESG ratings and be supported by a transparently disclosed methodology. ERPs are not free to issue any score without oversight, are not limited to unlisted companies, and do not need the rated company's board to approve their methodology.

  1. AAny ESG-related score may be issued freely without SEBI oversight
  2. BERPs operate under SEBI-prescribed categories of ratings and must disclose methodology, so the product must fit the framework and be transparently explainedCorrect
  3. CERPs may only rate unlisted companies
  4. DERPs may issue ratings only after the company's board approves the methodology

Explanation

SEBI's framework recognises defined ESG rating products, including ESG Rating and ESG Score categories, and requires transparency about methodology and data sources. A product must fit these categories and be explained. It is not unregulated, is not restricted to unlisted entities, and does not need company board approval of methodology.

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