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SEBI mandates Certification for ESG rating providers within 6 months; Tightens Disclosure Norms for Listed Firms

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Sebi mandates certification for ESG rating providers within six months

The Securities and Exchange Board of India (SEBI) has mandated that all entities providing ESG (Environmental, Social, Governance) rating services to Indian entities to get a certification from it within 6 months w.e.f. July 3, 2023.

  • A person acting as an ESG rating may continue to do so for a period of six months from the date of this regulation coming into force.

This information by SEBI is issued  in  exercise  of  the  powers  conferred  by  Section  11  (1)  of SEBI  Act,  1992  read  with  the  provisions  of Regulation 20 of SEBI (Credit Rating Agencies) Regulations, 1999, to protect the interest of investors and to regulate the securities market.

Key Points:

i.To render their ESG rating services, institutions will have to be incorporated as a company under the Companies Act, 2013, with ESG marked as the main object under their Memorandum of Association (MoA).

ii.That institution will have to disclose their methodologies for all ratings on their website, and declare the weightage given to all ESG factors in the final score.

iii.Foreign entities too will have to attain certification from the SEBI. The foreign ESG rating provider will need a minimum of 5 years of relevant experience before they can render services to Indian businesses.

iv.This new provision will led to transparency and reasoning, and help in minimizing biases as Indian companies tend to get worse ratings compared to their European counterparts without complete and proper explanation

Note: ESG  Rating  Providers  are  regulated  under  the  provisions  of SEBI (Credit  Rating  Agencies)  Regulations, 1999 (CRAR Regulations as  amended  with  effect  from July  4,  2023)  that inter-alia prescribe guidelines  for  registration  of ERPs,  general  obligations  of ERPs,  manner  of inspection and code of conduct applicable to ERPs.

Click Here for Official Circular

SEBI tightens disclosure norms for listed firms

SEBI has also tightened the disclosure norms for listed companies with strict timelines and introduced criteria for determining the materiality of events w.e.f. July 15, 2023.

  • This information by SEBI is  issued  in  exercise  of  the  powers  conferred  under  sections  11(1) and  11A of  the SEBI Act, 1992 and regulation 101 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015/LODR Regulations, 2015.

What is under the new framework?

i.Listed companies must reveal family settlement agreements that can affect their management and control to stock exchanges. If the listed entity is involved in the agreement, it must be disclosed within 12 hours, and if it’s not involved, within 24 hours.

ii.Disclosure time for important events or information, such as acquisitions, Scheme of Arrangement, share consolidation, and securities buyback, has been reduced from 24 hours to 12 hours.

iii.Decisions made in a board meeting must be disclosed within 30 minutes after the meeting ends.

iv.If the information doesn’t originate from the listed entity, it should be disclosed within 24 hours of the event.

v.In case a company’s board grants in-principle approval or permission to explore (which isn’t final approval), it doesn’t need to be disclosed.

Click Here for Official Notification

Recent Related News:

i.SEBI decided to establish the Corporate Debt Market Development Fund (CDMDF) in the form of an Alternative Investment Fund (AIF) with an initial corpus of Rs 3,000 crore to act as a backdrop facility for the purchase of investment-grade corporate debt securities during times of stress.

ii.Emkay Global Financial Services has received in-principle approval from the Investment Management Department of the Securities and Exchange Board of India (SEBI) for sponsoring a Mutual Fund (MF) business and incorporate an Asset Management Company (AMC).

About Securities Exchange Board of India (SEBI):

Chairperson -Madhabi Puri Buch
Headquarters – Mumbai, Maharashtra
Establishment – 12 April 1992