Navigating SEBI’s 2025 ESG Circular: An Independent Director’s Lens on Sustainability, Transparency, and Regulatory Coherence

Introduction

On 29-4-2025/30-4-2025, the Securities and Exchange Board of India (SEBI) released an important circular revising norms for ESG rating providers (ERPs) in India.¹ This Circular, which impacts both subscriber-pays and issuer-pays models, aims to refine the ESG rating ecosystem, mitigate undue constraints on issuers, and enhance investor transparency.

As a qualified independent director and ESG practitioner, this development raises critical considerations around corporate accountability, regulatory compliance, and global harmonisation of ESG disclosures.

This article seeks to:

(i) Dissect the Circular’s provisions through the lens of boardroom governance.

(ii) Compare India’s updated stance with global ESG regulations.

(iii) Offer insights and actionable guidance for directors and ERP stakeholders.

SEBI’s 2025 Circular and outcomes

The details and the possible outcomes from a corporate governance perspective are summarised in the table below.

Table: Key provisions of SEBI’s 2025 Circular — Summary and analysis

Category	Provision	Implication for Boards and ESG Practitioners
Rating withdrawal — subscriber-pays	Permissible if there are no active subscribers or issuer fails to file BRSR.	Directors must ensure continued engagement with ESG stakeholders and timely BRSR compliance.
Exception — Indices	Ratings tied to indices (e.g. Nifty 50) cannot be withdrawn if indices have subscribers.	Companies in major indices must be mindful of perpetual rating visibility.
Rating withdrawal — issuer-pays	For debt: Allowed after 3 years or 50% of tenure (whichever is longer), plus 75% bondholder NOC.	Boards issuing debt instruments must track timelines and coordinate bondholder communications early.
	For entities: Ratings may be withdrawn after 3 years of continuous coverage (no bondholder NOC needed).	Highlights the importance of sustained ERP engagement beyond short-term reputational targets.
Disclosure requirements	Subscriber-pays ERPs must publicly list ESG score details but limit detailed rationale to subscribers.	Transparency for investors is enhanced, while proprietary data remains protected. Directors must adapt disclosures accordingly.
Display on stock exchanges	ESG ratings to be visible on company and security pages.	Boards need to ensure accuracy and consistency between internal ESG metrics and what is displayed publicly.
Internal audit and governance for ERPs	Category II ERPs get 2-year grace period; auditor eligibility expanded.	Signals future standardisation. Directors should anticipate this when selecting ERP partners.

Data quality, assurance bottlenecks, and ERP capacity

(A) Data quality challenges

(i) Survey evidence: According to a 2024 KPMG India ESG survey, over 68% of Indian listed companies cited lack of standardised data collection processes as the top barrier to reliable ESG reporting.

(ii) SEBI observations: SEBI’s 2025 Circular itself notes that “inconsistent and incomplete data submissions have led to rating volatility and investor confusion”.²

(iii) Global comparison: A 2023 Refinitiv study found that ESG data scores for the same company can vary by up to 30% across different ERPs due to divergent methodologies and data gaps.

(B) Assurance bottlenecks

(i) Limited assurance providers: India has fewer than 25 SEBI-—registered assurance providers qualified for ESG/BRSR assurance as of June 2025, while over 1800 listed companies are required to comply.

(ii) Capacity strain: This results in potential bottlenecks, with some providers handling up to 80 clients each, raising concerns about depth and quality of assurance.

(iii) Global benchmark: By comparison, the EU’s CSRD mandates third-party assurance for over 50,000 companies but has a much larger pool of accredited providers and phased implementation to mitigate bottlenecks.

(C) ERP capacity and methodology divergence

(i) SEBI-registered ERPs: As of June 2025, there are seven SEBI-registered ERPs in India, with the top three controlling over 75% of the market share.

(ii) Methodology disclosure: SEBI’s 2025 Amendments require ERPs to publicly disclose methodologies, but a 2025 CFA Institute review found that only 60% of Indian ERPs had published full methodology documents by May 2025.

Conflicts of interest and assurance provider independence

(A) Potential conflicts of interest

(i) Issuer-pays model risks: In the issuer-pays model, companies pay ERPs for ratings, potentially incentivising favourable scores. A 2024 OECD Report flagged this as a “systemic risk” in emerging markets, including India.³

(ii) SEBI’s safeguards: The April 2025 Circular mandates “firewalls” between commercial and rating teams, but enforcement effectiveness is yet to be tested.

(B) Assurance provider independence

(i) Recent SEBI Amendments: SEBI now requires assurance providers to disclose any financial or business relationships with the company being assured in the past two years (SEBI Circular, April 2025).

(ii) Practical limitations: According to a 2025 Grant Thornton survey, 22% of assurance engagements in India had to be declined or reassigned in the last year due to independence/conflict issues.

(iii) Global precedent: The EU’s CSRD requires full independence and rotation of assurance providers every six years to reduce familiarity risk — India has not yet adopted such rotation norms.

Strategic considerations for independent directors

(a) Risk governance and ESG ratings

ESG ratings increasingly impact capital flow and stakeholder trust. Directors must include ESG ratings in enterprise risk management (ERM) in boardroom debates. The withdrawal of ratings either voluntary or regulatory can signal reputational risk. It is essential that such actions are communicated with clear context to avoid misinterpretation by stakeholders.

(b) Strengthening BRSR frameworks

The linkage between BRSR filing and the validity of ESG ratings underscores the importance of Board level ESG Committees. Directors should actively oversee the annual BRSR process and ensure robust sustainability data governance.

(c) Engagement with ERPs

Directors should build structured engagement protocols with ERPs. Clear documentation, audit trails, and ongoing dialogue are critical, particularly as ERPs face evolving audit and disclosure standards themselves.

(d) Investor communication

Public display of ESG scores on stock exchanges necessitates synchronised messaging across annual reports, integrated reports, investor presentations, and website disclosures.

Table: Comparative global landscape: ESG ratings

Jurisdiction	ESG rating regulation	Disclosure framework	Assurance requirements	Notable features
India	SEBI Circular 2025	BRSR Core	Phased third-party assurance	Value chain disclosures, ERP regulation
EU	Proposed EC regime	CSRD	Mandatory external assurance	Double materiality, taxonomy alignment
UK	Financial Conduct Authority (FCA)/ International Regulatory Strategy Group (IRSG) proposals	Task Force on Climate-related Financial Disclosure (TCFD) — aligned	Voluntary Code of Conduct	Focus on transparency, voluntary code
Japan	Local Financial Services Agency (FSA) guidance	Varies	Evolving	Early-stage regulation, global alignment
US	Securities and Exchange Commission (SEC) proposals	Climate-related	Under discussion	Focus on climate risk, legal challenges

Implications for mid cap and small cap companies

Challenges

(a) Resource constraints: Limited budgets for ESG data collection and assurance versus large caps.

(b) Supply chain pressure: Scope 3 reporting Singapore Exchange (SGX FY 2026) may trickle down from large clients.

(c) Regulatory ambiguity: SEBI’s Circular lacks explicit guidance for smaller entities.

Opportunities

(a) Tech enablement: Use AI-driven ESG platforms for cost-effective compliance (e.g. Zevero’s emissions tools).

(b) Investor appeal: Proactive ESG adoption attracts ESG-—-focused funds targeting emerging markets.

(c) Collaborative models: Pool resources via industry consortia for shared ERP due diligence.

Recommendations for boardrooms and practitioners

I would like to suggest the following for consideration:

(a) Institutionalise ESG oversight

Establish a dedicated ESG Committee at the Board level with clear mandates tied to rating outcomes, regulatory developments, and investor feedback.

(b) Scenario planning for rating withdrawal

Prepare proactive communication strategies for situations where ESG ratings may be withdrawn. Avoid reputational surprises.

(c) BRSR as a living document

Encourage cross-functional ownership of BRSR metrics. It must encompass from HR to operations thereby ensuring it’s not a once-a-year compliance document.

(d) ERP due diligence framework

Before onboarding or renewing ERP partnerships, assess compliance readiness, methodology transparency, and track record of public disclosures.

Personal reflections

Having worked across various Boards and ESG initiatives, it is encouraging to see SEBI embracing a more nuanced, proportionate regulatory approach. While some argue that rating withdrawals may reduce market transparency, the structured safeguards (e.g. index exceptions, bondholder NOCs) uphold systemic integrity. Yet, the real challenge lies in ensuring that boardrooms move beyond passive compliance to strategic ESG integration.

Looking ahead, India’s ESG architecture could align more closely with global frameworks such as ISSB (International Sustainability Standards Board) and SASB (Sustainability Accounting Standards Board).

SEBI’s incremental adoption of BRSR core suggests a modular approach to convergence, starting with sector-specific metrics and moving toward double materiality. By 2026, we may see mandatory climate-related disclosures harmonised with TCFD guidelines, and potential interoperability with the EU’s ESAP (European single access point) for cross-border data traceability.

For boardrooms, this signals a shift from ESG as “reporting exercise” to “strategic foresight”. I believe it is a tool to attract capital, reduce volatility, and elevate governance standards globally.

Conclusion

SEBI’s April 2025 ESG Circular represents a pivotal moment in India’s sustainability journey. It gives Boards, ERPs, and investors the tools to build a more flexible, accountable ecosystem. For independent directors and ESG professionals, this is an invitation to lead and not just comply.