How ESG ratings are built, why they disagree, and how SEBI regulates them.
Three products with similar names that measure different things. Industry-relative ratings, absolute risk ratings and broad scores, the steps in building a rating, SEBI's six rating products, and a checklist for reading a rating report.
ESG raters often disagree about the same company. The research on how much and why, the three sources of disagreement (scope, measurement and weight), the problem of rewritten history, SEBI's attempt to narrow the gap, and how to use ratings that disagree.
India was one of the first countries to regulate ESG raters. The 2023 rules, who must register, Category I and II providers, the six rating products, India-specific parameters, issuer-pays and subscriber-pays models, the 19 registered providers, and how India compares with the EU and UK.
Every ESG rating, fund and model rests on data. The main sources of ESG data on Indian companies, the common quality problems (boundaries, estimates, lags, restatements, size bias), the global data providers, and a checklist for testing a figure before you use it.
Accidents, protests, regulatory action and fraud allegations can hit a company far faster than any rating changes. How controversy scores work, four Indian examples, the gap between allegations and findings, and a simple way to build event risk into a valuation.
The ESG indices that Indian ESG funds and index funds track: Nifty100 ESG, Nifty100 Enhanced ESG, Nifty100 ESG Sector Leaders, BSE 100 ESG, and the global Dow Jones Best-in-Class (formerly DJSI) indices. Their rules, exclusions and weighting, and the checks to run before using one.
