The Adani-Hindenburg fallout: ESG rating agencies can’t be onlookers when controversies break out

Illustration by Muhabit ul haq via AI.

Synopsis
Sebi wants ESG rating providers to react when a company rated by them is hit by a controversy. While all core ESG ratings must be based on assured or verified data, in case of any unverified controversy, the agencies should be able to provide additional commentary or observations. Will this make the agencies more accountable for the ratings they provide?

On February 22, 2023, capital-market regulator Sebi came out with a consultation paper on the regulatory framework for ESG rating providers in the securities market. The paper gives a peek into how Sebi expects ESG rating providers (ERPs) to react when a company rated by them is hit by a controversy. It is a curious coincidence that the proposals come barely a month after New York-based short seller Hindenburg Research (January 24) leveled