This case study chapter examines India’s corporate governance framework in relation to Principle III.D. of the G20/OECD Principles, which calls for proxy advisors, ESG rating and data providers, as well as index providers, to disclose and minimise conflicts of interest while ensuring transparency in their methodologies. The chapter reviews how these service providers are regulated and monitored, as well as prevailing market practices. It finds that India’s overall framework is robust and consistent with Principle III.D., for proxy advisors, ESG rating agencies, and index providers. The chapter concludes by identifying policy considerations for each type of service provider that could further strengthen the regulatory framework.
The Role of Capital Market Service Providers in Corporate Governance
Proxy Advice, ESG Ratings and Indices
Abstract
India’s capital markets have grown significantly over the past three decades, evolving into one of the largest and most dynamic in the world. With 4 586 companies listed on the main Indian stock markets and 546 listed on growth markets, India ranks among the top markets globally by number of listed firms (OECD, 2025[1]). Despite this, ownership remains relatively concentrated, with the so-called “promoter groups” (Section 5.3.5) having consistently held approximately 50% of shareholdings in Indian listed companies since 2001, which shapes governance practices (OECD, 2020[2]). Institutional investors have become important public equity owners in India. Asset managers now represent 21% of public equity ownership in India as of 2024 (OECD, 2025[3]). Non‑domiciled institutional investors account for 50% of the institutional investor holdings in 2024 (OECD, 2025[3]).
5.1.1. Institutional framework
In recent years, the role of market intermediaries in India has expanded. Proxy advisory firms now play an important role in shaping shareholder voting outcomes, especially in cases of related party transactions (RPTs) or board appointments. Index providers are becoming more influential, as investment flows linked to benchmark indices create stronger demand for a variety of benchmarks. ESG rating and data providers have gained traction as well, but the industry is still nascent. This ecosystem reflects India’s gradual shift toward a more sophisticated and globally integrated capital market.
India’s institutional framework for proxy advisors, ESG rating and data providers, and index providers is established primarily through the Securities and Exchange Board of India (SEBI). The role of SEBI is “to protect the interests of investors in securities and to promote the development, and to regulate the securities market and for matters connected therewith or incidental thereto” (SEBI, 2025[4]). SEBI has wide-ranging powers and functions, which include regulating stock exchanges, foreign institutional investors, CRAs, mutual funds and listed companies. This case study chapter of India primarily focuses on SEBI as the lead regulatory and supervisory authority for market service providers.
The Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory and Development Authority (IRDAI) may also take an interest in how market service providers are regulated and operate. PFRDA regulates and develops the pension sector in India, ensuring the orderly growth of pension funds and protecting the interests of subscribers (PFRDA, 2025[5]). IRDAI oversees the insurance sector, promoting fair practices, ensuring policyholder protection and fostering the growth of the insurance industry (IRDAI, 2025[6]). In India, pension funds and insurers are required to vote their shares in listed companies, making proxy advisory services essential. They also rely on index providers to benchmark index-based strategies and may increasingly use ESG ratings and data to guide investment decisions and meet regulatory requirements.
The Ministry of Corporate Affairs (MCA) oversees the administration of company law and serves as the registrar for all companies in India, setting disclosure requirements for unlisted entities, while listed companies fall under SEBI’s responsibility. The MCA has recognised the role of proxy advisors, ESG rating and data providers and index providers as they play a critical role in shaping corporate governance, investor behaviour and market transparency. To support co-ordination with SEBI, the MCA has a Memorandum of Understanding in place and a representative sits on the SEBI board.
The Financial Stability and Development Council (FSDC) is a forum for the financial regulators in India to engage and liaise with one another. The FSDC is chaired by the Finance Minister of India and consists of different committees and working groups. For example, when SEBI, PFRDA and IRDAI were considering introducing a common stewardship code, the proposal was examined and approved by a sub-committee of the FSDC (PFRDA, 2018[7]). This formal engagement is also typically complemented by informal exchanges between IRDAI, PFRDA and SEBI.
5.1.2. Legal and regulatory framework
SEBI has the power to issue rules and guidance that are “in the interests of investors, or orderly development of securities market” (SEBI, 2014, p. 12[8]). Regulations are formal legal instruments issued by SEBI that establish binding rules. Circulars issued by SEBI serve as operational clarifications to existing regulations, offering detailed guidance to support effective compliance. Master circulars consolidate multiple related circulars into a single, comprehensive document to enhance clarity and accessibility for market participants. While master circulars do not introduce new regulations, both circulars and master circulars carry regulatory weight and are binding on regulated entities. SEBI retains enforcement powers to ensure compliance with the provisions outlined in these documents. SEBI is not required to consult on master circulars; however, it still consults as this is considered good practice. This also allows market participants the opportunity to comment on SEBI’s regulatory proposals before they are finalised.
SEBI also engages closely with stakeholders through advisory committees, public consultations and regular industry interactions. For example, proxy advisors, ESG rating and data providers and index providers are represented on some SEBI committees (Box 5.1). Proxy advisors, which are classified as research analysts (Section 5.2) and recognised as “intermediaries” alongside mutual funds and CRAs, are not represented on SEBI’s Intermediary Advisory Committee. This Committee advises SEBI on the regulation of market intermediaries, including stockbrokers, depository participants, clearing members and research analysts. Its mandate includes recommending measures to enhance market safety, efficiency, transparency and integrity; addressing legal and procedural simplification; promoting the use of technology and cybersecurity; and responding to emerging market developments (SEBI, 2025[9]).
All new regulations or amendments to existing regulations must be approved by SEBI’s board. Once SEBI introduces regulation, the Industry Standard Forums (ISF), which comprises different market participants, including market service providers, focus on the practical implementation of those regulations (SEBI, 2025[10]). While the ISFs cannot propose new regulations, they can recommend phased implementation approaches and operational improvements to ease compliance. Market participants use this platform to propose how regulations should be implemented, considering the scale and capacity of the market. ISF’s recommendations result in "operational guidelines" approved by SEBI. These guidelines, while distinct from SEBI-issued circulars, serve a similar function in practice, as they guide market operations. This stakeholder engagement platform plays a key role in facilitating ease of doing business, with SEBI’s final approval ensuring regulatory oversight.
Advisory Committee on Listing Obligations and Disclosure (ACLOD)
ACLOD advises SEBI on listing obligations, disclosure requirements, corporate governance and the harmonisation of obligations at the time of listing and post-listing (SEBI, 2025[11]).
Committee on Corporate Governance
The Committee was established to recommend measures to enhance governance standards among listed companies in India. Its focus includes strengthening the independence and effectiveness of independent directors, improving disclosures on RPTs, addressing concerns in accounting and auditing practices, enhancing board evaluation processes, facilitating investor voting and participation, and promoting overall transparency
The Committee was established to recommend measures to enhance governance in listed companies, focusing on independent directors, RPT disclosures, accounting and auditing practices, board evaluations, investor participation and overall transparency (SEBI, 2025[12]).
Committee on Review of Takeover Regulations
The Committee advises SEBI on substantial acquisitions and takeovers, reviewing regulations in light of judicial rulings and SEBI guidance, recommending legal and procedural simplifications, proposing global best practices and addressing other relevant matters (SEBI, 2025[13]).
ESG Advisory Committee
The Committee advises SEBI on issues pertaining to ESG matters in securities and domestic and international ESG-related developments (SEBI, 2025[14]).
Market Data Advisory Committee (MDAC)
The Committee develops policies for standardised, secure and transparent access to securities market data, including identifying data gaps, standardising definitions and formats, adopting global standards, and overseeing the integrity, storage, transfer and publication of data while recommending regulations to ensure accountability and compliance (SEBI, 2025[15]).
Members of Advisory Committee on Mutual Funds
The Committee advises SEBI on mutual fund regulation to ensure investor protection, support industry development, improve disclosure requirements and recommend legal changes to promote simplification and transparency (SEBI, 2025[16]).
Primary Markets Advisory Committee (PMAC)
The PMAC advises SEBI on regulating and developing India’s primary market, recommending legal changes to enhance transparency and simplify procedures, and overseeing market intermediaries to ensure investor protection (SEBI, 2025[17]).
The main elements of the regulatory framework for proxy advisors in India are set out in the 2014 SEBI (Research Analysts) Regulations and the 2025 Master Circular for Research Analysts. Together, they form the key foundations of SEBI’s ongoing monitoring of proxy advisors in India.
5.2.1. SEBI Research Analyst Regulations, 2014
The SEBI (Research Analysts) Regulations, 2014 (hereafter “Research Analyst Regulations”) seek to put in place a framework to register and regulate research analysts, including proxy advisors. The Research Analyst Regulations apply to a broad range of research analysts, who are defined as “a person who, for consideration, is engaged in the business of providing research services […]” (SEBI, 2014, p. 5[18]). While proxy advisors are defined as “any person who provide advice, through any means, to institutional investor or shareholder of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items” (SEBI, 2014, p. 4[18]).
The Research Analyst Regulations set out registration requirements for all individuals and entities, including proxy advisors, providing research on listed Indian securities to be registered with SEBI and specific professional or academic qualifications. The regulations impose detailed obligations to manage conflicts of interest, restrict trading around publication dates, and require transparency in compensation structures. Analysts must disclose financial interests, affiliations with the subject company, and the use of AI tools in generating research. Research analysts must abide by a Code of Conduct specified in the Third Schedule of the Research Analyst Regulations. The Code of Conduct covers issues such as diligence, conflicts of interest, confidentiality, professional standards, compliance and the responsibility of senior management.
Proxy advisors must additionally disclose: (i) the extent of research behind each voting recommendation and the effectiveness of internal controls to ensure the accuracy of company data; (ii) their policies for engaging with companies, including how they communicate and review recommendations; and (iii) comprehensive records of all voting recommendations issued. SEBI may inspect entities for compliance and can provide clarifications or exemptions to proxy advisors where regulatory application poses unnecessary difficulties.
5.2.2. Master Circular for Research Analysts
In addition to the Research Analyst Regulations, SEBI issued a Master Circular for Research Analysts in 2023, updated in June 2025. The Master Circular for Research Analysts combined multiple circulars and directions in relation to research analysts into one document (SEBI, 2025[19]). The Master Circular for Research Analysts contains “Procedural Guidelines for Proxy Advisors” and a section for “Grievance Resolution between listed entities and proxy advisors”.
The Procedural Guidelines for Proxy Advisors require proxy advisors to maintain and disclose clear, annually reviewed voting policies, along with the methodologies used to form their advice. Proxy advisors must promptly inform clients of factual errors within 24 hours of becoming aware of them and share material updates or revisions within 72 hours, ensuring clients have sufficient time to make informed decisions. A defined process must be followed for communicating with both clients and the evaluated companies. Reports should be shared with both parties simultaneously, with company comments included as an addendum if received within the disclosed timeline. If recommendations go beyond legal requirements, the rationale must be clearly explained. Proxy advisors must also identify, manage and disclose conflicts of interest, including those arising from other business activities. Listed entities may raise grievances with SEBI, which will assess potential non-compliance under the relevant regulations.
5.2.3. SEBI expectations and monitoring of proxy advisors
SEBI’s regulatory approach to proxy advisors is to ensure that institutional investors act as good stewards rather than closely regulating proxy advisor activities. However, SEBI sets disclosure and transparency requirements for proxy advisors (Sections 5.2.1 and 5.2.2), which include reviewing their voting policies annually, managing conflicts of interest and the public disclosure of their voting recommendations for certain issues.
According to SEBI and market participants, it is not currently common for proxy advisors in India to have material conflicts, considering their ownership structure and services provided. Proxy advisor recommendations on RPTs are publicly disclosed via a SEBI-supported portal. SEBI is also developing an application, which would cover other voting issues in addition to RPTs with the goal of further increasing transparency on proxy advisor voting recommendations.
In terms of monitoring the activities of proxy advisors, SEBI does not assess the quality of voting recommendations but does verify through supervisory activity whether proxy advisors maintain adequate records of their decision-making process. To facilitate any grievances of listed companies against proxy advisors, listed companies may approach SEBI. In turn, SEBI examines the issue for non-compliance by proxy advisors with existing regulatory standards.
5.2.4. Expectations of institutional investors and their use of proxy advisors
Mutual funds and asset managers in India are required to vote on all shareholder resolutions and document the rationale behind their decisions (SEBI, 2024[20]; SEBI, 2019[21]). In 2019, SEBI introduced a mandatory stewardship code for all mutual funds, requiring them to have a clear policy on voting and disclosure of voting activity and their use of proxy advisors (SEBI, 2019[21]). Similarly, PFRDA and IRDAI issued stewardship codes in line with SEBI’s code for pension funds and insurers respectively (PFRDA, 2018[7]; IRDAI, 2020[22]).
Asset managers may engage one or more proxy advisors but must make independent voting decisions. While they may align with proxy advice, they must be able to demonstrate independent judgement and are ultimately accountable for the voting outcome, not the proxy advisor. Asset managers must have a formal voting policy outlining how proxy advice will be used. Pass-through voting is prohibited for mutual funds but allowed under segregated mandates with a single investor.
SEBI supervises whether asset managers follow their own policies and are not overly reliant on proxy advisors. Although some asset managers frequently agree with proxy recommendations, this is permissible if justified. Ultimately, SEBI’s regulatory focus is on the fiduciary responsibilities of asset managers, including the duty to critically assess the quality of proxy advice received before discharging voting decisions.
5.3.1. Market structure and context for proxy advisors in India
The proxy advisory market in India is relatively nascent, with SEBI beginning to register proxy advisors under the Research Analyst Regulations in 2014. Currently, there are four operational proxy advisors in India: three domestic and one international. The domestic firms include InGovern Research Services Pvt Ltd (“InGovern”), Institutional Investor Advisory Services India (IIAS) Limited, and Stakeholder Empowerment Services (SES) (Box 5.2). Most institutional investors seem to use the services of IIAS and SES. Institutional Shareholder Services (ISS) India Private Limited is the only firm owned by an international proxy advisory firm operating in India. The other large international proxy advisory firm – GL – is not registered with SEBI. However, an international proxy advisory firm may operate in India by entering into an agreement with a SEBI-registered proxy advisor.
InGovern Research Services Pvt Ltd
InGovern is a corporate governance research and advisory firm that supports both investors with financial exposure to companies and companies seeking to improve their governance practices. InGovern’s services include proxy advisory, governance research and consulting, shareholder activism support, governance education, risk monitoring, and IT solutions (InGovern, 2025[23]).
Institutional Investor Advisory Services India (IIAS)
IIAS provides independent research and voting recommendations on shareholder resolutions for around 1 000 companies, covering over 95% of market capitalisation in India. IIAS supports institutional investors through customised governance and ESG research, engagement support, and stewardship reporting. It also maintains a database of voting patterns. IIAS increasingly advises investors on ESG integration, including hedge funds and private equity firms (IIAS, 2025[24]).
Stakeholder Empowerment Services (SES)
SES is a proxy advisory and governance firm that provides independent voting recommendations, corporate governance research, and a proprietary governance score assessing board practices, disclosures, and sustainability. It also provides ESG scores, data services and customised research, including benchmarking and regulatory support tools such as its online Business Responsibility and Sustainability Report (BRSR) (Section 5.4.3) platform, which helps investors incorporate governance and ESG risks into their decision-making (SES, 2025[25]).
5.3.2. Conflicts of interest
The market structure of proxy advice in India may be unique. While most proxy advisors acknowledge offering secondary services beyond core proxy advisory, market participants generally do not view conflicts of interest as a significant concern, as proxy firms operating in India rarely provide services to companies, except for InGovern (Box 5.2). This lack of additional commercial relationships may help maintain independence in their proxy voting research and recommendations.
5.3.3. Methodology transparency from proxy advisors
There is broad consensus that proxy advisors are playing an increasingly influential role in India’s corporate governance landscape, particularly among the top 750 listed companies that are most relevant to institutional investors holdings. Market participants highlighted proxy advisor recommendations are taken seriously, with some companies revising or withdrawing board appointments and resolutions in response to concerns raised. This growing recognition has positioned proxy advisors as key stakeholders, especially in large-capitalisation companies where board composition and disclosures are under heightened scrutiny.
Stakeholders acknowledge that proxy advisors frequently advocate for governance standards that exceed legal requirements, pushing for stricter criteria on independent director appointments and enhanced transparency. While this has improved disclosure practices and corporate accountability, it has also led to occasional tensions (Section 5.3.5). Some highlight that many companies seek to meet higher standards of good corporate governance rather than perceiving them as unnecessary burdens.
The only international proxy advisor operating in India typically adopts principle-based frameworks, offering flexibility but sometimes lacking local nuance. Domestic proxy advisors often employ rules-based approaches that are more prescriptive and closely aligned with Indian-specific corporate governance issues. The use of AI among proxy advisors appears limited, reflecting prevailing market practice rather than regulatory restrictions, as there are currently no rules prohibiting it.
5.3.4. Review of benchmark policies and engagement from proxy advisors with listed companies
While SEBI regulations require proxy advisors to review their policies annually, market practices vary in how these reviews are conducted and how engagement with listed companies is managed. All proxy advisors in India update their benchmark voting policies every year, incorporating some level of feedback from market participants. Some conduct internal reviews and may consider suggestions outside the shareholder voting season, but do not share draft policies with institutional investors or listed companies to maintain independence. Others adopt a public consultation process, inviting feedback from companies, institutional investors and other market participants before finalising their policies. Despite differing practices, Indian market participants have not expressed concern about frequent changes in benchmark voting policies.
Proxy advisors aim to publish their benchmark policies ahead of India’s AGM season, which runs from July to September. However, in the absence of a regulatory deadline, publication dates vary across proxy advisors, potentially making it difficult for listed companies and institutional investors to fully understand these policies in advance of important resolutions at company AGMs.
In developing benchmark policies, proxy advisors generally draw on global corporate governance best practices and adapt them to the Indian market context. Some place greater emphasis on practicality, using insights from previous proxy seasons and regular engagement with market participants. Customised voting policies are not common in India, and most proxy advisors currently operate under a single benchmark policy.
Although not mandated by SEBI regulations, proxy advisors in India do engage with listed companies. However, the nature of this engagement varies. Some enforce strict blackout periods – beginning when a company’s notice is circulated and ending with the issuance of proxy advice – to avoid potential pressure to alter recommendations. Outside these periods, they engage year-round and offer free clarifications. Others do not impose blackout periods and maintain ongoing engagement with listed companies.
India has a tiered investor grievance redressal mechanism. Investors can first raise complaints through an online system directed at the relevant company or service provider. If unresolved, the issue can be escalated to the concerned industry association or stock exchange and ultimately to SEBI, which may investigate further. To enhance dispute resolution, SEBI has introduced the Smart ODR (Online Dispute Resolution) platform, which mandates all market intermediaries – including proxy advisors – to register and participate.
5.3.5. Issues that proxy advisors particularly pay attention in their voting research and recommendations
Under Indian corporate law, several governance matters such as board appointments and committee structures must be approved at shareholder meetings. While most resolutions meet legal requirements, market participants highlight that proxy advisors often apply higher governance standards that go beyond national Indian rules. Proxy advisors highlight that they focus on the equitable treatment of shareholders and stakeholders when issuing voting recommendations to their institutional investor clients.
Proxy advisors place strong emphasis on RPTs, a common governance concern in India given the dominance of promoter-controlled companies. Promoters are individuals who establish or control a company, often through significant shareholdings or management roles, while non-promoters include minority shareholders (OECD, 2020[2]). Historically, a lack of transparency hindered investor assessment of RPTs, but in response to SEBI’s encouragement, the industry launched a tool to improve RPT analysis and disclosure (RPTanalysis, 2025[26]; SEBI, 2025[27]). More recently, proxy advisors have begun recommending votes against RPTs where company disclosures are inadequate. Also, an ISF (Section 5.1.2) has since established disclosure standards to aid institutional investors in identifying potential conflicts of interest.
5.3.6. Use of proxy advice by institutional investors and mandatory voting
Institutional investors suggest that proxy advisors have played a key role in improving the quality and consistency of institutional investor voting in India, helping shift practices from ad hoc, case-by-case decisions towards more systematic and informed approaches. This evolution has been reinforced by regulatory developments, particularly SEBI's mandatory voting requirement for mutual funds, which has significantly increased shareholder participation. One market participant estimated that approximately 80% of listed equity is now subject to active voting.
Institutional investors value proxy advisors for their detailed analysis, data and structured frameworks, which help inform voting decisions. While proxy advisors provide important input, institutional investors sometimes diverge from recommendations based on their internal assessments and direct engagement with companies – especially on sensitive matters such as executive remuneration, board independence and RPTs.
While it is acknowledged that proxy advisors have contributed to raising governance standards in India, some are viewed as overly activist or rigid. For instance, some advisors recommend voting against open‑ended resolutions even when capped by a pre-defined value. Institutional investors express a preference for more pragmatic and flexible approaches that account for company-specific circumstances. These challenges are especially acute during India’s concentrated AGM season from June to September, which presents significant operational challenges for implementing stewardship practices at scale.
Market participants agree that India’s mandatory voting rule for institutional investors has greatly increased shareholder participation. However, regulators mandating voting in all circumstances also carries risks. Faced with tight timelines and limited resources, some institutional investors may cast votes mechanically, fostering box-ticking behaviour and greater dependence on proxy advisors. Smaller investors are particularly strained by the research demands, and a uniform voting mandate may not account for differing strategies or portfolio structures.
Despite these challenges, asset managers in India are generally compliant with SEBI’s stewardship code, including the disclosure of voting decisions and rationales. In large-capitalisation companies, according to a market participant, they typically support around 95% of management resolutions, while dissent is more common in smaller firms where governance concerns arise. Pension funds, under the PFRDA’s stewardship code, are also required to vote on all resolutions without abstaining. While pension funds may use proxy advisors for legal and analytical insights, they ultimately make and cast their votes based on the majority of pension funds’ view.
The main elements of the regulatory framework for ESG rating providers in India are through the 1999 Credit Ratings Agencies Regulations and the Master Circular for ESG Rating Providers (ERPs), both of which are overseen by SEBI (Section 5). Together, they form the key foundations of SEBI’s ongoing monitoring of ERPs in India. However, it is important to note ESG data providers are not in scope of the CRA Regulations or the Master Circular for ERPs.
SEBI recently established a working group to review the regulatory framework for ERPs following feedback from market participants. The group will assess the current framework, consider stakeholder representations, recommend measures to strengthen transparency, reliability and investor confidence in ESG ratings, and review international developments to identify alignment with global best practices in light of the Indian market context (SEBI, 2026[28]).
5.4.1. Credit Rating Agencies Regulations amendments for ESG rating providers
SEBI introduced the CRA Regulations in 1999 to establish a comprehensive regulatory framework for the registration, functioning and supervision of CRAs in India. The most recent amendment to the CRA Regulations of July 2023, brings ERPs under SEBI’s regulatory perimeter. ERPs, although distinct from traditional CRAs in their assessment criteria, are now subject to several core regulatory expectations akin to CRAs. These include requirements related to registration, transparency, governance, conflict of interest management and disclosure of methodologies.
Chapter IV.A of CRA Regulations define ESG ratings as “rating products that are marketed as opinions about an issuer or a security, regarding its ESG profile or characteristics or exposure to ESG risk, governance risk, social risk, climatic or environmental risks, or impact on society, climate and the environment, that are issued using a defined ranking system of rating categories, whether or not these are explicitly labelled as ‘ESG ratings’” (SEBI, 2023, p. 24[29]).
A core focus of the amended framework is the effective management of conflicts of interest. SEBI requires ESG rating activities to remain independent from any advisory or consulting services offered to rated entities, ensuring that commercial relationships do not compromise rating objectivity. ESG rating functions must be organisationally separate from other business activities, such as ESG consulting or credit rating services. Providers must disclose any potential conflicts, such as shareholding or business ties with rated entities. These measures are complemented by a mandatory code of conduct and board-level oversight.
The regulations also place strong emphasis on transparency in ESG rating methodologies. Providers must publicly disclose their methodologies, detailing the indicators used across ESG pillars, data sources, weighting approaches and any sector-specific criteria. Methodologies must be reviewed regularly, with updates and their rationale clearly communicated. Providers are also required to clarify whether ratings are solicited or unsolicited and to what extent they involve issuer engagement. To enhance accountability, annual transparency reports must be published, summarising methodologies, changes made and rating distributions (SEBI, 2023[29]).
5.4.2. Master Circular for ESG Rating Providers (ERPs)
In addition to the CRA Regulations, SEBI issued a Master Circular for ERPs in 2023 which sets out the procedural, disclosure and compliance obligations that ERPs must follow (SEBI, 2023[30]). The section below outlines the key requirements of the Master Circular, with a focus on conflicts of interest and methodology transparency.
Types of ESG Ratings / Scores
The Master Circular for ERPs defines six types of ESG rating products. ERPs may offer additional products, provided they comply with the CRA Regulations and the Master Circular. If an ERP relies exclusively on third-party verified or assured data for its ESG rating products, it does not need to provide separate core ESG products or versions based on unverified data. However, the ERP must clearly state this in its rating rationales and published methodologies.
ESG ratings must reflect ESG factors relevant to the Indian context and be industry-agnostic to allow comparison across industries. Certain ESG products have defined methodological expectations. For example, the Transition or Parivartan Score reflects a company’s progress toward net zero goals or improvements in ESG risk management. It should capture recent developments or future plans, rather than only assessing the current state. This may include trend analysis of quantitative indicators, revenue changes from ESG-related activities or other relevant metrics based on the ERP’s model.
The Core ESG Rating must be based solely on third-party assured or audited data. While the rating excludes unverified data, the rationale may include commentary on such data for user awareness. The Core ESG Rating, Core Transition or Parivartan Score, and Core Combined Score shall be offered by an ERP only if the rated entity has disclosed against the BRSR Core.
It is mandated that ESG ratings shall be provided on a scale of 0 – 100, where 100 represents the maximum score.
Business Model
ERPs must adopt either a subscriber-pays model or an issuer-pays model. Under a subscriber-pays model, the ERP receives revenue from subscribers such as institutional investors for providing ESG ratings. Under an issuer-pays model, the ERP is paid by the rated entity based on a written contractual agreement.
To avoid conflicts of interest, ERPs are not permitted to operate a hybrid model. An ERP must not assign some ratings under the issuer-pays model and others under the subscriber-pays model. Only one model may be followed across all ESG ratings issued by the ERP.
Provisions applicable to ERPs following an issuer-pays model
The Master Circular specifies provisions for ERPs following an issuer-pays model. This includes instances where the corporate issuer does not co-operate with the ERP.
Requests by an issuer for the review or appeal of the ESG rating(s) assigned to it or its securities must be evaluated by a review panel that is independent of the original rating team. The panel must consist of a majority of members who were not involved in the initial rating assignment, and at least one-third of its members must be independent. For this purpose, "independent" refers to individuals who have no pecuniary relationship with the ERP or any of its employees.
Rating Process
ERPs must publish detailed guidelines on their website, covering key operational and governance areas. These include compensation arrangements with rated entities, policies for issuer review or appeal of ratings and definitions of non-co-operation under the issuer-pays model. ERPs must also disclose how conflicts of interest are managed.
Any changes to rating processes or policies must be disclosed on the ERP’s website, along with a reference or link to the original version. ERPs are also required to maintain comprehensive records supporting each ESG rating and any subsequent review. These records should capture the key factors influencing the rating, the rating’s sensitivity to changes in those factors, and any material correspondence with the issuer or its representatives. If a quantitative model is used, the ERP must document the reasons for any significant differences between the model’s output and the final rating assigned.
Monitoring and Review of Ratings
The CRA Regulations require ERPs to have systems in place to track material developments related to ESG factors to ensure accurate and timely ESG ratings. Material developments are defined as any event that results in a change of the ESG profile of the rated company. Such developments include, but are not limited to, the publication of BRSR, or controversies or penalties in ESG-related areas.
ERPs must review ESG ratings upon the occurrence, announcement or news of such material developments, and must do so immediately, but not later than 10 days after the event.
Rating Rationale
ERPs must issue an ESG rating rationale or report that includes the assigned rating and the reasoning behind it. The rating rationale or ESG report should include, at a minimum: the current ESG rating or score; any change in the rating or score since the previous evaluation; the date of the last review; a summary of key qualitative and quantitative drivers, including controversies and their impact; individual E, S and G pillar scores along with their respective drivers; the weight assigned to each pillar in the overall rating; and a brief explanation of the rating’s intent (e.g. unmanaged risk, performance, impact), with a link to the methodology document where applicable. The report should also provide a summary of, or a link to, the methodology used.
The rating rationale must include a dedicated section on rating sensitivities. This section should identify the ESG performance levels that could lead to a change in the rating, whether upward or downward. These sensitivities should be disclosed in quantitative terms wherever possible and presented in a manner that is clear to investors, avoiding vague or generic risk statements.
Governance norms of ERPs
The board of an ERP is required to establish specific committees, including an ESG Ratings Sub‑Committee. The rating team of the ERP must report to a designated chief ratings officer (CRO). The CRO should report directly to the ESG Ratings Sub-Committee of the board.
Dealing with Conflicts of Interest
ERPs must establish clear policies and internal codes to manage conflicts of interest. Analysts involved in ESG ratings must not participate in marketing, business development or fee negotiations with the rated issuer. Employees engaged in the rating process, and their dependents, must not own issuer’s securities. If any ERP employee moves to work in a rated entity, the rating must be promptly reviewed.
ERPs must ensure systems are in place to prevent the misuse of price-sensitive information and avoid conflicts in investment decisions. Access persons must obtain prior approval from the compliance officer before trading in securities of rated entities. The compliance officer must seek approval from the chief executive for their own trades, and approvals are valid for seven working days.
New employees must disclose all securities holdings within seven working days of joining. All employees, including access persons, must report securities transactions within seven working days and submit an annual consolidated statement within 30 working days of the financial year-end.
Rating Committee members must disclose any interest in the securities or instruments being rated. ERPs must ensure that no employee involved in the rating process holds ownership in the securities of the issuer.
Continuous Disclosures
ERPs must disclose and maintain key information on their websites. This includes policies for managing conflicts of interest related to investments or trading by the ERP. ERPs must also disclose their compliance with IOSCO’s Recommendations for ERPs issued in November 2021 and the accompanying good practices for ERPs issued in November 2022. If there is any non-compliance, the ERP must explain the reasons for deviation.
ERPs must establish internal policies and codes of conduct to identify and manage actual or potential conflicts of interest. They must maintain high integrity, treat all clients fairly, avoid personal conflicts and disclose any potential impairments to objectivity.
Preventive measures should include information barriers, restrictions on trading during sensitive engagements, and a ban on the use or sharing of unpublished material information. ERPs must also avoid market manipulation, unsuitable product sales incentives and misuse of client information.
The board of the ERP is responsible for implementing these measures, providing necessary oversight, and reviewing compliance periodically. These guidelines apply in addition to existing SEBI regulations and circulars on conflict of interest.
Standardisation of Industry Classifications – Applicability to ERPs
ERPs are advised to use the standardised industry classification published by recognised stock exchanges for all rating exercises, peer benchmarking and related research activities. As this classification is periodically reviewed and updated by the stock exchanges, ERPs are directed to adopt the most current version as published from time to time.
Firewalls between ERPs and their Affiliates
To maintain clear separation between SEBI-registered ERPs and their non-ERP entities (such as associates, subsidiaries or group companies), specific safeguards are mandated. ERPs must adopt a board-approved policy outlining firewall practices with non-ERP entities. This policy should address the sharing of infrastructure, staff or resources – specifying whether such arrangements are temporary – and the measures in place to protect the independence of the ESG rating process. It must also guide employees on information sharing to prevent conflicts of interest.
ERPs must disclose on their website any common directors, chief executive officers (CEOs) or managing directors (MDs) shared with non-ERP entities. These disclosures must be updated on the first working day of each month, include the date of the latest update and provide a link to archived disclosures. ERPs and their non-ERP entities must operate separate websites.
5.4.3. SEBI expectations for institutional investors and their use of ESG rating and data providers
For mutual funds investing in ESG schemes, at least 65% of assets under management must be invested in companies reporting against SEBI’s BRSR and BRSR Core frameworks (SEBI, 2024[20]). The BRSR framework, applicable to the largest 1 000 listed companies, promotes ESG transparency across nine key principles. BRSR Core is a focused subset with critical, quantifiable metrics that require third-party assurance and is being phased in – starting with the top 150 companies in FY 2023–24 and extending to the top 1 000 by FY 2026–27.
A formal framework for third-party assurance is still under development. The regulatory approach in India is tailored to the local context, with corporate sustainability reporting standards based on Indian frameworks rather than international frameworks. India introduced sustainability reporting in 2012 through the Business Responsibility Report.
ESG ratings play a critical role in operationalising SEBI’s BRSR and BRSR Core disclosure frameworks. Core ESG Ratings, developed by registered ERPs, are expected to be grounded in assured BRSR Core data. Mutual funds investing in ESG schemes are also required to use ESG ratings in their monthly portfolio statements: for example, BRSR and BRSR Core score for each company in the portfolio, once these scores are provided by SEBI-registered ERPs. ESG mutual funds must also name ERPs providing the scores and if the fund switches to a different ERP, the reason for the change must be explained. For annual ESG fund manager commentary, the track of ESG rating movements in investee companies must also be disclosed (SEBI, 2024[20]).
5.4.4. Market participant views on the ERP regulations
When registering with SEBI as an ERP under the CRA Regulations, applicants are classified into two categories. Category I firms are typically subsidiaries of an existing intermediary registered with SEBI, for example, a Research Analyst firm or a CRA. Category II firms are typically smaller start up-type firms without a preexisting relationship with SEBI.
Category I ERPs must maintain at least four employees with specialisations across key areas: governance, sustainability, social impact or social responsibility, data analytics, finance, information technology and law. An individual can be counted as a specialist in up to two areas. A person qualifies as a specialist if they have either: (i) a minimum of five years of relevant work experience; or (ii) a professional qualification from a recognised Indian or foreign university, a CFA charter or another SEBI-specified qualification. To also be registered as a Category I ERP, the applicant must always maintain a minimum liquid net worth of ₹5 crores (approximately USD 600 000).
Category II ERPs are required to have at least two employees specialised in governance, sustainability, social impact or social responsibility and data analytics. The criteria for recognising specialisation are the same as for Category I – either five years of relevant experience or a recognised professional qualification in the specified area. For Category II ESG Rating Providers, the applicant must also always maintain a minimum liquid net worth of ₹10 lakhs (approximately USD 12 000).
Most market participants do not view the qualification requirements for ERP staff as difficult to meet, though they may be more burdensome for smaller Category II providers. Concerns were raised about compliance risks if a specialised employee leaves and must be urgently replaced to meet SEBI regulations. Since most ESG rating reviews occur within a concentrated four-month period following the release of BRSR reports and financial statements, maintaining the required number of certified staff year-round may be challenging.
Some ERPs also suggest that the governance requirements set out in SEBI’s Master Circular for ERPs are overly burdensome, particularly for international providers. Requirements such as establishing a dedicated ESG Ratings Sub-Committee and mandating that rating teams report to a designated CRO can be challenging for international ERPs, which typically operate under centralised governance and methodology structures. Additionally, all ESG ratings covering local companies to be used by locally based investors must be issued by a domestic Indian entity. This limits the ability of international ERPs to serve Indian clients using their global infrastructure.
Some market participants note that while other jurisdictions follow more principles-based frameworks aligned with IOSCO’s recommendations (Section 2.3.3), India’s approach is comparatively more prescriptive, even though it remains aligned with the IOSCO recommendations.
5.5.1. Market structure and context for ESG rating and data providers in India
Prior to the introduction of ERP regulations, many providers were operating in India. However, some global ERPs were reluctant to account for the local Indian context – for example, the country’s transition to a low‑carbon economy with a longer-term trajectory compared to developed markets. SEBI introduced a regulatory regime in response to growing reliance on ERPs, drawing on its experience with CRA regulation. The ERP Regulations and the Master Circular for ERPs were designed, at least in part, to address these concerns and ensure greater consideration of the Indian context.
Since the introduction of the regulation, nineteen ERPs have registered with SEBI (Figure 5.1). Of these, eleven operate on a subscriber-pays model – three as Category I and eight as Category II. The remaining eight follow an issuer-pays model, with two in Category I and six in Category II. No international firm currently operates under the new regulatory regime, although one holds a license (Table 5.1). Some market participants suggested that the requirement for international ERPs to establish a subsidiary may have disrupted the market and led to provider exits.
Note: The data of SEBI-registered ESG rating providers is accurate as of 16 March 2026.
Source: SEBI (2025), Registered ESG Rating Providers, https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=47.
5.5.2. Conflicts of interest
Many ERPs and some market participants do not view conflicts of interest as a major concern, despite differences in corporate structures and service lines. Among the nineteen SEBI-registered ERPs (Table 5.1), a range of business models exists. Certain ERPs primarily operate as proxy advisors, leveraging the extensive data they collect – especially on governance, but also on environmental and social issues – to scale in the Indian ESG ratings market. This overlap may pose conflicts of interest if the firm provides ESG ratings for listed institutional investors that subscribe to the firm’s proxy advice. However, regulatory safeguards, including firewall requirements between ERPs and affiliated businesses, help mitigate these risks. Furthermore, most proxy advisors follow a subscriber-pays model, limiting rated issuers’ influence and some further enhance transparency by disclosing potential conflicts in their proxy voting research reports.
Similar potential conflicts of interest arise when ERPs also operate an indices business that uses ESG ratings in index construction and rebalancing. One ERP noted that, as they follow a subscriber-pays model, conflicts related to index constituents are minimal from their perspective. The ERPs also do not view the use of ESG ratings and data in indices as a conflict, citing regulatory and internal firm safeguards, including public disclosure of such practices.
Where CRAs also offer ESG ratings, overlaps in business models and client relationships can create potential conflicts of interest, potentially impacting the objectivity, independence and credibility of both credit and ESG ratings. Market participants generally do not view CRAs offering ESG ratings through a subsidiary as a significant concern.
A minority of market participants suggest that ERPs could follow both a subscriber and issuer-pays model concurrently without major conflicts of interest. However, as per the SEBI regulations, to avoid conflicts of interest, ERPs are not permitted to operate a hybrid model (Section 5.4.2). While there may be benefits to establishing the two mutually exclusive models of subscriber and issuer-pay models for ERPs, this policy reduces the potential scale of providers in a market that is still nascent. It also affects the flexibility of the market to transition to a subscriber-pay model when sustainability-related disclosure improves.
Note: The data of SEBI-registered ESG rating providers is accurate as of 16 March 2026.
Source: SEBI (2025), Registered ESG Rating Providers, https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=47.
5.5.3. Methodology transparency
The regulatory framework for ERPs in India is designed to meet market-specific needs, requiring ESG rating products that reflect Indian norms and disclosure requirements. This includes the mandatory use of corporate sustainability disclosures under SEBI’s BRSR and BRSR Core frameworks. These frameworks have significantly improved the availability of sustainability-related data in the Indian market and form a critical input to ESG ratings.
BRSR-based ESG scores may differ from those based on international frameworks and practices. While ERPs are not required to use all core BRSR metrics, they must disclose how much of the rating relies on assured versus non-assured data. This enhances transparency but may introduce limitations when comparing Indian ESG ratings with those based on global sustainability standards. For example, Indian ESG ratings for pharmaceutical firms may exclude key internationally recognised metrics, such as Food and Drug Administration compliance, which some global investors consider essential.
International ERPs may face challenges in adapting to India’s regulatory context. SEBI regulations require ratings to be industry-agnostic and scored on a 0–100 scale, in contrast to the industry-relative and letter‑based systems commonly used internationally. While global ERPs typically apply the Global Industry Classification Standard (GICS), Indian ERPs are required to use a domestic classification issued by stock exchanges. International ERPs would need to develop new methodologies for India to meet SEBI regulations.
Some market participants note that Indian ERPs tend to develop methodologies that are better aligned to local conditions, such as India’s long-term path toward a low-carbon economy and country-specific questions related to social equality. This is consistent with SEBI’s regulatory emphasis on not only identifying ESG risks and opportunities but also evaluating the social responsibility of issuers within the Indian context.
ERPs must use material events – such as the publication of BRSR reports, financial statements or ESG‑related controversies – to justify changes to ESG ratings. However, the simultaneous release of BRSR and financial reports can create practical challenges for ERPs to update ratings quickly and comprehensively.
SEBI mandates that ERPs disclose all rating scores and related information. While this promotes transparency and accountability, it can impact business models that rely on proprietary methodologies as a competitive advantage. Some international ERPs may be reluctant to fully disclose their models, which may slow their entry or adaptation to the Indian market.
5.5.4. Business models and their implications for ESG rating methodologies
ERPs must operate under either a subscriber-pays or issuer-pays business model (Section 5.4.2) and the requirements vary based on the chosen model. ERPs operating under the subscriber-pays model must rely exclusively on publicly available information, whereas issuer-pays ERPs are required to engage directly with the rated entity and may use non-public information. This separation is deliberate, intended by SEBI to clearly differentiate the transparency and depth of ratings produced under each model.
In a subscriber-pays model, ERPs are not required to share the ESG rating or accompanying reports with the rated entity. Ratings are based strictly on publicly available information and there is no engagement with the issuer during the rating process. The ERP is not obliged to notify or share the rating with the company before or after publication unless the issuer is also a subscribing client. Furthermore, under this model, ERPs are prohibited from using any non-public information.
SEBI recently amended the framework for ERPs using the subscriber-pays model, requiring them to share ESG rating reports simultaneously with both subscribers and the rated entity. The rated entity must be given two working days to provide comments. Any response received within this period must be included as an addendum to the report. If the issuer disputes the data, the ERP may either revise the report or issue an addendum with the issuer’s comments and the ERP’s response. ERPs must also publish their policy on report sharing and provide a facility for rated entities to seek clarifications, including on methodologies and assumptions (SEBI, 2023[30]; The Economic Times, 2025[31]).
Market participants highlight that the subscriber-pays model works effectively where there are standardised data and reporting, as is the case in India with BRSR and BRSR Core. However, even within this model, ERPs may issue non-Core ESG ratings that incorporate publicly available information beyond what is required in BRSR Core.
SEBI distinguishes between Core and non-Core ESG ratings in terms of data requirements. Core ESG Ratings must be based solely on third-party assured or audited data, typically sourced from BRSR Core disclosures. These ratings must not include any unverified data in the score itself. ERPs may include commentary on unverified data in the rating rationale to enhance transparency. Non-Core ESG ratings may incorporate non-BRSR or unverified data, but ERPs are required to disclose the extent to which such data informs the rating. This distinction ensures users are aware of the reliability of the data behind the rating.
Under the issuer-pays model, ERPs must engage directly with the rated company and use both public and non-public information to form their rating. The use of non-public information does not need to be assured; however, ERPs must ensure that such information is obtained through a transparent, reliable and consistently documented process. The ERP is required to share the draft ESG rating and rationale with the issuer before publication, giving the issuer an opportunity to review the information. Issuers also have the right to appeal the rating, and such appeals must be reviewed by a panel in which a majority of the members were not involved in the initial rating, and at least one-third are independent, meaning they have no financial relationship with the ERP or its employees. Some Indian issuers view the issuer-pays model as more effective because the ability to share non-public information allows for a more comprehensive and informed ESG rating process.
5.5.5. Market participant views of ESG ratings
Most institutional investors use ESG ratings to support, but not drive, investment decisions. Instead, they rely on ESG ratings, data and reports primarily for stewardship activities, especially when engaging issuers on material ESG risks and opportunities. For regulatory compliance, some focus on top-level scores but refer to full reports for engagement purposes. Several institutional investors have developed internal ESG assessment frameworks, though their preference for these over external ratings is not always clear. ESG ratings are seen as particularly useful for large Indian issuers, enabling investors to allocate more resources to smaller issuers that may fall outside ERP coverage.
Institutional investors are generally able to understand the methodologies of ESG ratings well. However, market participants note that ESG rating methodologies may give too much weight to controversies or newspaper articles without undertaking in-depth due diligence to understand the credibility or severity of such events and how they may impact ESG ratings.
Many Indian issuers have received unsolicited ESG ratings from ERPs under the subscriber-pays model. Under SEBI regulations, these ratings must be based solely on publicly available information (Section 5.5.4), which could lead to lower scores or ratings where disclosures are limited. While this can be a common source of complaints in other markets, SEBI notes that no formal complaints from issuers had been received at the time of writing. While there is general agreement that ESG ratings and methodologies are relatively straightforward for issuers to understand, many emphasised the importance of engaging directly with ERPs to clarify the information being used. Issuers also note that the format and expectations for data submission can be quite prescriptive. For example, some ERPs use standardised information forms while others rely on existing reports and disclosures as a starting point.
The SEBI (Index Providers) Regulations, 2024 serve as the central framework governing index providers in India and form the foundation of SEBI’s ongoing oversight in this area.
5.6.1. SEBI (Index Providers) Regulations, 2024
The SEBI (Index Providers) Regulations, 2024 (hereafter “Index Provider Regulations”) seek to provide for a regulatory framework for index providers in the securities market with the objective of fostering transparency and accountability in governance and administration of indices. An index is defined as prices, estimates, rates or values related to securities that are made available to subscribers (free or paid), calculated periodically using a formula or assessment, and used as a reference to determine the price or value of financial instruments, or to measure their performance (SEBI, 2024[32]).
The Index Provider Regulations focus on "Significant Indices", which are indices managed by an index provider and tracked or used as benchmarks by domestic mutual funds with assets exceeding limits set by SEBI. These rules apply only to providers managing Significant Indices composed of securities listed on a recognised Indian stock exchange for use in the Indian market. The regulations do not apply to providers managing indices comprising only global assets, a mix of global and Indian assets, or indices used exclusively outside India. Additionally, benchmarks regulated by the Reserve Bank of India are not covered by these regulations. SEBI's regulation does not include any requirements specific to ESG indices, as the regulations focus on general index governance and transparency without targeting specific index categories.
In January 2026, SEBI launched a consultation proposing a definition of significant indices. Under the proposal, a benchmark or index (including an index of indices) based on listed securities would be considered significant if it is tracked or benchmarked by domestic mutual fund schemes with cumulative assets under management exceeding ₹20,000 crore (approximately USD 2.4 billion). Providers of indices designated as significant would be required to apply for registration as an index provider within six months of the circular’s issuance (SEBI, 2026[33]).
Index Providers must ensure strong governance to protect the integrity of the benchmark process, minimise conflicts of interest and separate governance from commercialisation. They must establish an Oversight Committee to manage all aspects of benchmark determination, including reviewing changes to index design, overseeing new benchmarks, addressing audit results and ensuring methodologies are accurate and up to date. The regulations also require clear policies to manage conflicts of interest, safeguard sensitive information and prevent personal or business interests from interfering with responsibilities. These policies must apply to both oversight and daily governance staff and include rules on protecting confidential data, controlling information flow and trading restrictions related to pending index changes.
Index providers must have a documented control framework for calculating, maintaining and sharing the index. This framework must include an effective whistle-blowing mechanism to report potential misconduct, available to all employees, including those working for entities involved in co-developing the index or third parties in the benchmark process. The framework must also include clear processes and a methodology for calculating and maintaining the index, detailing scenarios in which discretion may be used in rebalancing or revising index constituents.
The regulation sets out requirements for index quality and methodology. The index provider must use sufficient data to ensure the index reflects the underlying interest and share guidelines on how data is used. Index providers should maintain the index's integrity with consistent, high-quality inputs. Providers can gather submissions from market segments but must perform due diligence and have a Code of Conduct for submitters covering quality, oversight, conflicts of interest, record-keeping and whistleblowing, except for indices based on transaction data from regulated markets. The provider must publicly document the methodology, ensuring transparency in calculations, changes to index constituents and the use of expert judgement. They must also seek market feedback, consult stakeholders, and give advance notice of any significant changes.
Stock exchanges must provide equal, unrestricted and transparent data access to all index providers with a data-sharing agreement, ensuring data is distributed fairly, without bias towards associates, and with consistent timing, format and method. An index provider must have its compliance with the IOSCO’s Principles for Financial Benchmarks assessed every two years by an independent external auditor with proven expertise.
5.6.2. SEBI expectations and monitoring of index providers
As the Index Provider Regulations were introduced in March 2024, SEBI has not yet conducted inspections or supervision of index providers, as no providers have registered yet, awaiting the definition of "significant indices", which is a prerequisite for regulatory oversight (Section 5.6.1). Some index providers have proactively submitted evidence to SEBI of compliance with the IOSCO Principles for Financial Benchmarks, as required under the framework.
5.6.3. Market participant views on SEBI’s Index Provider Regulations
Many international index providers already comply with the IOSCO Principles for Financial Benchmarks, and SEBI’s alignment with these principles is viewed as a positive development. However, concerns remain regarding the practical challenges international providers face in complying with SEBI regulations – particularly the cost and complexity of establishing a physical presence in India. This requirement poses a barrier to entry and makes it difficult for international index providers to gain a foothold in the Indian market, which is already highly concentrated.
A broader concern is the potential for regulatory fragmentation. If each jurisdiction imposes different requirements, global operations and governance frameworks could become significantly more complex for index providers, who typically harmonise their methodologies worldwide. The most challenging aspect would be operating under the supervision of an additional regulator, on top of the regulatory obligations they already meet in other jurisdictions.
5.7.1. Market structure and context for index providers in India
According to SEBI, as of April 2025, mutual funds in India hold around USD 137 billion in passive index investments, reflecting a significant inflow of capital into index funds. The rising influence of passive investing is a key reason SEBI chose to regulate index providers. With substantial capital tied to benchmarks, SEBI seeks greater transparency around the discretion involved in selecting securities and to evaluate what constitutes fair and transparent practices over time.
There are currently three existing domestic index providers operating in India: Bombay Stock Exchange (BSE) Indices, CRISIL Indices and the National Stock Exchange of India (NSE) Indices Limited. There are no international index providers registered or operating in India. This is primarily because they are awaiting SEBI’s definition of significant indices (Section 5.6.1).
BSE Indices is a subsidiary of BSE and offer a variety of indices that track large, mid and small-cap stocks, as well as sectoral indices. Similarly, NSE Indices is a subsidiary of NSE and owns and manages a portfolio of over 400 indices under the Nifty brand (NSE Indices, 2025[34]).
CRISIL Indices, now a subsidiary of S&P Global, has operated under its governance framework since being acquired in 2013, while continuing to develop and manage its own indices, which are used by mutual funds across a range of investment strategies.
5.7.2. Conflicts of interest
Many index providers and market participants do not view conflicts of interest as a major concern, despite differences in corporate structures and service lines. However, when an index provider operates as part of a stock exchange group – as with BSE Indices and NSE Indices Limited – it faces potential conflicts due to its dual role: constructing objective benchmarks while being linked to trading platforms with commercial interests.
A key concern is bias in index composition, where providers may favour their own listed securities to boost trading volumes, attract fund flows and increase revenue. This could lead to the exclusion of equally eligible securities from other exchanges undermining neutrality. Beyond composition, index methodology and governance may reflect the parent exchange’s strategic priorities, for example, encouraging more frequent rebalancing or promoting preferred market segments. Without operational independence, decisions on inclusion and methodology changes may be unduly influenced by business objectives.
Similarly, when an index provider operates within a CRA, it can give rise to conflicts of interest due to overlapping roles in benchmarking and credit assessment. Both functions influence capital allocation and when housed in the same organisation, business incentives may blur the line between objective analysis and commercial strategy. A key concern is the potential for favourable treatment of rating clients. Issuers whose debt is rated by the CRA may also seek index inclusion and if methodologies are opaque or allow discretion, there may be pressure to accommodate them. This risk increases when issuers use multiple services from the parent firm such as research, data or consulting, creating cross-selling opportunities that may compromise impartiality. The index provider might design bond indices that align with its parent’s ratings or favour market segments where it has stronger client ties. For example, including a company’s debt in an index shortly after a credit rating upgrade from the same group.
Index providers operating in India highlight robust conflicts of interest management frameworks characterised by strong disclosure regimes. Where index providers are part of a parent stock exchange or CRA, many noted that conflicts are limited in nature because each entity operates as a separate legal entity with dedicated governance structures. Firewalls are in place to prevent the sharing of sensitive information between business units, helping to mitigate the risk of conflicts influencing index construction or related decisions. Most providers explained no conflicts had been identified and disclosed, but if they were to materialise, they would be disclosed to the market.
In India, as in many other markets, index providers earn revenue primarily through royalties from the use of their indices by institutional investors as well as fees for customised indices. Compensation models typically include a percentage of assets under management for passive funds and fixed fees for active funds. Additional revenue streams may vary by provider but can include services such as portfolio benchmarking data, ESG ratings and analytics – offerings that may introduce potential conflicts of interest. Most index providers do not view these secondary services as a significant concern, citing regulatory safeguards such as operational separation between business lines and internal policies designed to manage and mitigate conflicts.
5.7.3. Methodology transparency from index providers
All index providers make their methodologies publicly available and transparent. When making significant changes to their indices, providers have structured decision-making processes. One provider uses a public consultation process for any significant material change – determined through using policies and principles – which runs for 45 days, with decisions taken by an internal committee comprising both voting and non-voting members. Another index provider uses a policy committee and a maintenance committee, which include external participants, to decide on any changes to an index, although no public consultation is undertaken. One provider noted receiving one complaint per quarter; however, most are corporate queries.
SEBI does not set a specific frequency for index providers to review their methodologies, but most providers typically conduct reviews at least every six months. One provider explains they review their methodologies annually, while another explains they review them semi-annually, with some indices, such as corporate bonds, reviewed quarterly.
Although the regulation requires index providers to give advance notice of any significant changes, it does not prescribe a specific notice period. In practice, providers typically give around four weeks’ notice, though this varies: one provider generally offers at least a month, while another indicates offering about two weeks for material changes.
One index provider explains that it implements a buffer consideration policy for adding new securities into its indices. For example, the provider would only add a new company if its free float is 1.5 times higher than that of the next largest company, which is a market practice rather than a regulatory requirement.
There could be instances where subjectivity arises, such as with ESG indices or during mergers and acquisitions that affect index composition. For ESG indices, weights are determined by index providers, but they seem to have limited discretion in defining what qualifies as ESG. One index provider explains they have Corporate Events Committee which manages mergers and acquisitions; in such cases, the provider publishes a discussion paper before implementing any changes.
Index providers take differing approaches to their use of ESG ratings when constructing ESG indices. One provider reports using ESG ratings from third-party providers, whereas another highlights it produces ESG ratings internally and is expanding its own ESG ratings for the top 500 issuers in India due to issues with third-party ratings. Where ESG ratings and data flow into indices, this information is publicly disclosed.
In India, two of the largest domestic index providers – BSE and NSE (Section 5.7.1) – are owned by stock exchanges, which could raise concerns about equal and fair access to vital exchange data for other index providers. However, index providers indicate that they face no challenge in securing data from stock exchanges at a reasonable cost when constructing or maintain indices. This market practice is in line with the regulatory requirements requiring stock exchanges to provide equal, unrestricted and transparent data access to all index providers with a data-sharing agreement (Section 5.6.1).
5.7.4. Market participant views of index providers
The methodologies behind both ESG and non-ESG indices such as the BSE SENSEX and NIFTY 50 are generally considered clear and transparent by market participants. Institutional investors and issuers note that methodologies are easy to understand, even without direct engagement with index providers. No significant concerns were raised regarding index construction, methodological changes or churn during index rebalancing, with participants finding these processes comprehensible and manageable. Consequently, complaints to index providers or to SEBI were non-existent.
However, an example was highlighted in which two issuers were excluded from an ESG index due to a rise in reported controversies that were not evident in the issuers’ disclosures. Some market participants note ESG rating methodologies, which are used to construct and maintain ESG indices, can at times rely too heavily on the volume of negative media coverage or controversies without sufficient due diligence to assess the credibility or materiality. Nonetheless, in this instance, the index provider explained the rationale behind the exclusions, helping to clarify why their removal was justified and in line with the ESG indices methodology.
Most market participants do not view conflicts of interest as a major concern, despite differences in corporate structures and service lines of index providers operating in India.
SEBI has an effective regulatory framework for proxy advisers, ESG rating providers and index providers. It has established clear requirements for these entities, including the disclosure of methodologies and the management of conflicts of interest, in line with Principle III.D. of the G20/OECD Principles. SEBI also maintains a robust stakeholder engagement process with market participants including international service providers. SEBI remains committed to the continuous improvement of its regulatory framework and to aligning with international best practices.
5.8.1. Proxy advisors
Over the past three decades, India’s capital markets have seen notable growth, with more than 5 000 listed companies and a rapidly expanding investor base. This development can be explained by effective regulatory structures that address key corporate governance issues such as independent directors and related-party transactions (RPTs). India’s phased-in regulatory approach and well-structured public consultations are also worthy of praise, alongside a good level of co-ordination between regulators, exemplified by the common stewardship code introduced by SEBI, PFRDA and IRDAI.
Within this framework, SEBI has played a central role in enhancing market integrity. It has established clear requirements for proxy advisors, including disclosure of methodologies and management of conflicts of interest. Proxy advisors are widely seen as having raised the quality of corporate governance in India. Moreover, SEBI scrutinises whether asset managers exercise independent judgement in voting decisions and holds them accountable for outcomes under their fiduciary duties. They must demonstrate critical assessment of proxy advisor recommendations, rather than relying on them uncritically. This complements SEBI’s regulation of proxy advisors and reflects a balanced approach to the overall framework. However, there are areas and issues that SEBI and other relevant authorities could address to further strengthen the regulatory framework for proxy advisors.
Market structure and conflicts of interest
The market structure of proxy advice in India appears to be unique. Market participants generally do not view conflicts of interest as a significant concern, as Indian proxy advisory firms typically do not offer secondary services to companies such as consulting. This lack of additional commercial relationships helps maintain independence in their recommendations. While this may be positive, further inspections may be needed to verify the absence of conflicts of interest considering other potential sources of conflicts such as the provision of other services to institutional investors and the ownership structure of proxy advisors.
Methodologies
Considering the importance of proxy advisors in India, their benchmark policy is influential on what resolutions listed companies will propose at shareholder meetings. Requesting the annual review of the benchmark policies to be published with sufficient time in advance before the proxy season, for example, by end of May, could be a policy worth considering. This policy could be beneficial in providing greater predictability and transparency for both listed companies and institutional investors ahead of the proxy season.
While the mandatory publication of proxy advice, including RPT analysis, may be helpful to retail investors, such disclosure may impact the revenue streams of proxy advisors. While this enhances transparency and investor protection, requiring proxy advisors to publish their RPT research and voting recommendations for free could threaten their business models by enabling free riding and reducing incentives to invest in quality research. It may also increase their legal and reputational risks. Requiring proxy advisors to publicly and freely disclose their voting advice and research should be carefully weighed against the detrimental impact on proxy advisors’ financial sustainability and the related availability of high-quality voting advice.
Enhancing SEBI’s Intermediary Advisory Committee composition
While proxy advisors are already represented on some SEBI committees (Box 5.1), SEBI could also consider including them on the Intermediary Advisory Committee (Section 5.1.2). This would be consistent with their classification as Research Analysts, a category of recognised intermediaries under SEBI’s regulatory regime alongside entities such as mutual fund managers and CRAs. Including proxy advisors on this committee would ensure their perspectives are reflected when discussing issues of market transparency and integrity, as well as in shaping responses to emerging market developments.
Institutional investor mandatory voting and use of proxy advisors
Mandating institutional investors to vote on all resolutions should be carefully weighed against the benefits of strengthening shareholder engagement and improving corporate governance standards. Market practitioners and SEBI highlighted the benefits of mandating mutual funds to vote and disclose their rationales when voting, notably the incentives for asset managers to discipline companies. Similar requirements also apply for pension funds and insurers for their listed equity investments.
While mandatory voting can promote engagement, it also carries risks. Mutual funds may cast votes simply to meet requirements, leading to poorly informed or box-ticking behaviour, often relying uncritically on proxy advisors. This is rarely required in other OECD and G20 jurisdictions and risks undermining independent judgement while increasing compliance costs, particularly for smaller mutual funds.
5.8.2. ESG rating and data providers
India is among the first jurisdictions to establish a comprehensive, regulation-based framework for ESG rating providers – an achievement worthy of recognition. SEBI has set clear requirements for disclosure of methodologies and management of conflicts of interest, consistent with Principle III.D. of the G20/OECD Principles and the IOSCO recommendations. While the framework’s scope is limited to ESG rating providers and excludes ESG data providers, this approach is broadly aligned with other jurisdictions that have law or regulation as the basis of their frameworks (Section 2.3.3). However, there are areas that SEBI could address to further strengthen the regulatory framework for ESG rating providers.
Market structure
While a regulatory framework centred on the Indian context has benefits, the absence of international ERPs has implications. Currently, no international firm operates in India, though one holds a licence (Table 5.1), and others may enter over time. Until then, reliance on local providers could reduce competition and market participant choice, increasing the risk of concentration and possibly lower quality in the ESG ratings market.
Business models
While there are benefits to establishing two mutually exclusive models of subscribers and issuers-pays for ESG rating providers (Section 5.4.2), this policy reduces the potential scale of providers in a market that is still nascent. It also affects the flexibility of the market to transition to a subscribers-pay model when sustainability-related disclosure through BRSR and BRSR Core matures further.
The exchange of non-public information between issuers and ESG rating providers following a subscribers-pay model is forbidden. However, the rationale of such a rule is not clear since the differentiation of the two different models exists to deal with conflicts of interest related to the payment, and it does not necessarily relate to the availability of information provided by the issuer.
Conflicts of interest
Many providers and market participants do not recognise material or significant conflicts of interest despite the variety of corporate structures and different lines of services ERPs offer in the Indian market (Section 5.5.2). While there are regulatory requirements from SEBI for firewalls between ERPs and their affiliated businesses (Section 5.4.2), further inspections or guidance may be needed to confirm ERPs are adhering to the regulatory requirements.
Methodologies
The establishment of minimum criteria for ESG rating methodologies – such as the use of BSBR core metrics or industry agnostic ratings to enable comparability across sectors – may need to be assessed cautiously. While these criteria may facilitate comparability within the Indian market and the consideration of the local context, they may inhibit market innovation, attractiveness to foreign service providers and comparability with ratings in other jurisdictions.
While the mandatory publication of top-level ESG scores may be helpful to retail investors, such disclosure may impact the revenue streams of ESG rating providers. SEBI mandates that ERPs disclose all rating scores and related information. While this promotes transparency and accountability, it may undermine business models that rely on proprietary methodologies as a competitive advantage.
International ERPs may face challenges in adapting to India’s regulatory context, which could slow their entry or adaptation to the Indian market. SEBI regulations require ratings to be industry-agnostic and scored on a 0–100 scale, unlike the industry-relative, letter-based systems used internationally. Indian ERPs must also use a domestic stock exchange classification rather than the GICS. Therefore, international ERPs would need to develop new methodologies for India to meet SEBI regulations.
Prescriptive regulatory approach
Some market participants note that while other jurisdictions follow principles-based frameworks aligned with IOSCO’s recommendations (Section 2.3.3), India’s approach is comparatively more prescriptive although it is grounded in IOSCO’s recommendations also. Requirements such as establishing a dedicated ESG Ratings Sub-Committee and mandating that rating teams report to a designated CRO can be challenging for smaller domestic ERPs, which have less resources to comply with these requirements, and global ERPs, which typically operate under centralised governance and methodology structures. Notably, this limits the ability of international ERPs to serve Indian clients using their global infrastructure.
For Category I and II requirements under the CRA Regulations (Section 5.4.4), particularly on capital requirements, skills and expertise, disclosure may achieve the same goals without unnecessary burden – for example, publishing the backgrounds and qualifications of senior management and analysts.
5.8.3. Index providers
India’s capital markets have seen notable growth, with mutual funds holding over USD 130 billion in index‑based investment strategies. This underscores the important role index providers play in determining where capital is invested. SEBI has set clear requirements for the disclosure of methodologies and the management of conflicts of interest, consistent with Principle III.D. of the G20/OECD Principles and the IOSCO Principles of Financial Benchmarks.
Some interesting market practices have been established in India. For example, one index provider has implemented a buffer policy under which a new security is included in an index only if its free float is at least 1.5 times higher than that of the company it would replace. However, there are areas that SEBI could address to further strengthen the regulatory framework for index providers.
Regulatory approach and market structure
Many international index providers already comply with the IOSCO Principles for Financial Benchmarks, and SEBI’s alignment with these standards is seen as a positive development. However, practical challenges remain – most notably the cost and complexity of establishing a physical presence in India, which poses a barrier to entry in an already highly concentrated market.
Methodologies
The establishment of a minimum criteria for the methodologies related to indexes – for example, the maximum concentration of the largest constituents in indices used as benchmarks for derivatives – may need to be assessed cautiously. While these criteria may have a reasonable rationale – such as reducing the risk of market manipulation in the case of the maximum concentration rule – they may also inhibit market innovation, reduce the attractiveness of the market to foreign service providers using internationally-recognised methodologies and limit comparability with indices in other jurisdictions.
SEBI, in collaboration with other relevant authorities, could consider standardising the minimum time that index providers give to market participants when announcing significant changes to an index. Currently, there is no regulatory requirement, and notice periods vary among providers (5.7.3). Alternatively, a standardised minimum notice period could apply only to the most significant indices above a certain size threshold determined by SEBI (Section 5.6.1).
Further supervision may be useful in areas where subjectivity arises, particularly in ESG indices or during corporate events such as mergers and acquisitions. While index providers state that indices simply reflect the markets they represent, some discretion does exist – for example, in weighting choices within ESG indices. Providers also take differing approaches to incorporating ESG ratings: some rely on third‑party providers, while others produce their own ratings. Where ESG ratings and data flow into indices, this information may need to be publicly disclosed.
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