The changes, effective immediately, aim to improve rating transparency, reduce conflicts of interest, and enhance market confidence, according to a circular issued by the Securities and Exchange Board of India (Sebi) on 29 April.

Now, ERPs operating under the subscriber-pays model can withdraw ratings if there are no active subscribers or if a company fails to file its Business Responsibility and Sustainability Reporting (BRSR) report, according to the circular. For issuer-pays models, ratings can be withdrawn only after a minimum period and with bondholder consent in the case of debt securities.

While subscribers like banks, insurance companies, or even the rated company itself pay to access the ratings under the subscriber-pay model, the company being rated pays under the issuer-pays model.

Short-term risk

“Conditional withdrawal could create short-term volatility in ESG risk perception, especially when driven by administrative lapses such as missing BRSR filings,” said Shailesh Tyagi, partner, sustainability and climate change, Deloitte India. However, he said, clear and transparent documentation of withdrawal rationale could help mitigate long-term reputational risk.

Moin Ladha, partner at Khaitan & Co., said ratings retracted or revised unexpectedly could lead to “fluctuating investor confidence, particularly if the conditions for withdrawal are not clearly defined or consistently applied”.

Revamped disclosures

The Sebi circular also revamped disclosure rules for ERPs. Subscriber-pays ERPs are no longer required to publish detailed rating rationales publicly, easing their compliance burden. However, they must disclose assigned ESG ratings in a standardised, year-wise format, including details of the rated entity, sector, and the date of rating.

Additionally, stock exchanges must now host ESG ratings on dedicated sections of company and debt security pages to ensure better investor visibility.

Ladha said the increased compliance burden from simultaneous disclosures and reliance on public data may raise operational costs. “ERPs may need to explore hybrid or issuer-pays models to maintain profitability and competitiveness. These changes aim at improving rating credibility, but they could challenge the subscriber-pays model’s viability unless ERPs adapt effectively,” he said.

However, according to Ketan Mukhija, senior partner at Burgeon Law, mandatory disclosures on stock exchanges could enhance market transparency and aid more efficient price discovery for ESG-linked instruments.

Reshaping of models

Experts also expect the circular to reshape ERP business models, pushing firms to reevaluate revenue strategies and compliance structures.

Ladha said stricter transparency and conflict-of-interest norms could undermine the viability of the subscriber-pays model unless ERPs adapt.

According to Tyagi, while these changes reduce public-facing obligations for subscriber-based ERPs, they may increase internal coordination and systemisation costs. Issuer-pays ERPs, meanwhile, must continue with full public disclosures and prepare for enhanced governance and audit requirements.

Some relief

Sebi granted Category II ERPs—a classification typically covering newer or smaller firms—a two-year extension before compliance with mandatory internal audits and governance committee formations kicks in.

The relaxation of governance norms for Category-II ERPs “may offer some relief, but smaller players may still struggle with capacity and compliance burdens”, Mukhija said.

The regulator has also expanded the pool of eligible auditors to include cost accountants and professionals with information systems security credentials.

Enhanced credibility

Despite initial challenges, experts are hopeful that the regulatory changes will enhance ESG rating credibility and support capital allocation into ESG-linked instruments.

“Improved visibility and transparency of ESG scores on stock exchanges will aid efficient price discovery and bolster investor confidence,” said Jyoti Prakash Gadia, managing director at financial advisory firm Resurgent India. “The changes are pragmatic, not disruptive, and will contribute to the long-term credibility of the ecosystem.”

The long-term impact will likely foster broader market acceptance and increased use of ESG ratings in investment decisions, experts said.

Tyagi believes the reforms will bring India’s ESG framework closer to global benchmarks, facilitating greater institutional interest. “For corporates, the clarity in rating assignment, withdrawal, and disclosure norms means better planning and predictability in ESG engagement.”