ESG Rating Agencies
ESG rating agencies assess companies on their Environmental, Social, and Governance (ESG) performance using quantitative and qualitative criteria, with SEBI mandating disclosure through the Business Responsibility and Sustainability Report (BRSR) to provide standardised data for ESG analysis in the Indian context.
Global ESG rating agencies — MSCI ESG Research, Sustainalytics, S&P Global ESG Scores, and ISS ESG — evaluate Indian listed companies primarily through questionnaire-based assessments supplemented by public disclosure data. Their methodologies differ significantly: MSCI focuses on ESG risk management and residual risk, while Sustainalytics uses an ESG risk framework that separates unmanageable risk from management quality. These divergences frequently result in the same company receiving materially different ratings from different providers, a phenomenon documented in academic literature and noted by SEBI and IOSCO.
In the domestic market, CRISIL ESG Scores — developed by CRISIL (a subsidiary of S&P Global) — use BRSR and other public disclosures to rate Indian companies on a standardised framework calibrated to Indian regulatory and industry contexts. CRISIL's scoring considers sector-specific materiality, meaning the E, S, and G weights vary by industry. A cement company would be evaluated more stringently on carbon emissions and water usage than a software company, reflecting the differing material risks across sectors.
SEBI's circular on ESG ratings in July 2023 introduced a regulatory framework for ESG Rating Providers (ERPs) operating in India, requiring them to register with SEBI, maintain transparency in their methodologies, and manage conflicts of interest. The regulation was prompted by investor concerns about the reliability, comparability, and potential greenwashing enabled by unregulated ESG ratings. SEBI also directed that ERPs use the BRSR data filed by companies as a primary input, creating a direct linkage between mandatory disclosure and ESG scoring.
The BRSR itself — mandated for the top 1,000 listed companies from FY 2022–23 onwards — contains over 140 data points across nine NGRBC (National Guidelines on Responsible Business Conduct) principles. Key disclosures include Scope 1, 2, and 3 greenhouse gas emissions; water withdrawal and consumption; waste generation and management; social metrics like employee diversity, safety statistics, and community investment; and governance disclosures on board composition and ethics.
For investors, ESG ratings serve multiple functions: as a screen for ESG-themed funds, as a supplementary risk signal alongside financial analysis, and as a reputational due diligence tool. However, the lack of standardisation across agencies means that users of ESG ratings must understand the underlying methodology rather than treating the score as an objective, comparable metric.