ESG Without Ownership: Why Sustainability Initiatives Fail Inside Organisations
For companies, ESG ratings have increasingly become part of the external perception of sustainability performance.
An ESG rating can influence how investors, lenders, customers and other stakeholders interpret a company’s environmental, social and governance practices. It can also affect how a company understands its position against peers and where it may need to strengthen its sustainability practices.
But ESG ratings are not the same as ESG disclosures.
A company may publish a detailed sustainability report and still receive different ESG assessments from different providers. Two rating providers may evaluate the same company using different methodologies, indicators, weightages, data sources and approaches to controversy assessment.
This has been one of the longstanding challenges in the ESG ratings market.
In India, the regulatory landscape has been evolving since SEBI introduced a formal regulatory framework for ESG Rating Providers (ERPs). SEBI has now taken another step by constituting a multi-stakeholder working group to review the regulatory framework for ERPs. The working group was announced on 18 February 2026 and is intended to undertake a comprehensive review of the existing framework, taking into account market feedback and global developments.
The development is important for both ESG Rating Providers and companies that are being rated.
For companies, the immediate message is not that ESG ratings are changing in a particular direction. The review is ongoing. Rather, it is a signal that the quality, transparency and reliability of ESG ratings remain areas of regulatory attention.
This makes it important for companies to understand how ESG ratings work, what information feeds into them and how organisations can improve the quality of the underlying information.
What Is an ESG Rating?
An ESG rating is an assessment of an organisation’s performance, exposure or management of environmental, social and governance factors based on a defined methodology.
However, there is no single universal ESG rating methodology.
Different providers may focus on different aspects of ESG performance. Some may place greater emphasis on environmental indicators while others may give greater importance to governance, industry-specific risks, controversies or management systems.
The data sources can also differ.
A provider may use publicly available corporate disclosures, regulatory filings, sustainability reports, company responses, third-party datasets, media information and other sources.
This means that an ESG rating is not simply a score calculated directly from a company’s BRSR.
The rating is an assessment produced by applying the provider’s methodology to the information it considers relevant.
This distinction is important for companies.
If a company wants to understand or improve its ESG rating, it first needs to understand what is actually being assessed.
Why SEBI Regulates ESG Rating Providers
SEBI introduced a regulatory framework for ESG Rating Providers in the Indian securities market in 2023.
The framework brought ERPs within the regulatory structure under the SEBI (Credit Rating Agencies) Regulations, 1999, with requirements relating to registration, obligations, disclosures, governance and conduct. SEBI’s master circular for ERPs consolidates the applicable procedural and disclosure requirements.
The regulatory approach reflects an important principle.
If ESG ratings are used in the securities market and can influence investment decisions, users need confidence that the ratings are produced through transparent and appropriately governed processes.
SEBI’s framework therefore addresses not only the existence of ESG ratings but also the way ESG Rating Providers operate.
The framework has continued to evolve. In April 2025, SEBI issued clarificatory and procedural changes intended to aid and strengthen ERPs.
The February 2026 working group is therefore another stage in the development of the regulatory framework.
What Is SEBI Reviewing?
SEBI announced the constitution of a multi-stakeholder Working Group to conduct a comprehensive review of the regulatory framework for ESG Rating Providers.
According to SEBI, the group will consider market feedback and global best practices while reviewing the framework. The stated objective includes enhancing the transparency and reliability of ESG scores and strengthening how ESG risks are assessed in the domestic securities market.
The important point is that the review should not be interpreted as a completed regulatory change.
SEBI has constituted a working group to review the framework. Until any recommendations are considered and formally incorporated through the appropriate regulatory process, companies should not assume that a particular future requirement will definitely apply.
This distinction is important when communicating about the development.
The current framework remains the applicable reference point, while the review indicates that further evolution is possible.
Why ESG Ratings Can Differ Between Providers
One of the most common questions companies ask is:
“Why do we have different ESG ratings from different agencies?”
The answer begins with methodology.
Imagine two providers assessing the same company.
Provider A may place greater emphasis on carbon emissions, resource efficiency and climate governance.
Provider B may place greater emphasis on labour practices, board governance and controversies.
Both may use legitimate methodologies while arriving at different conclusions.
The difference does not necessarily mean that one provider has made an error.
It can reflect differences in:
- Scope of assessment
- Industry-specific indicators
- Weightages
- Data sources
- Treatment of missing information
- Controversy assessment
- Time periods considered
- Materiality assumptions
- Methodology for normalising performance
- Treatment of qualitative information
This is one reason companies should avoid treating an ESG rating as a simple report card.
The rating needs to be understood in the context of the methodology behind it.
ESG Ratings Are Not the Same as ESG Reporting
This distinction is particularly important in India because BRSR has become an established part of the sustainability reporting landscape for listed entities within the applicable regulatory scope.
BRSR is a disclosure framework.
An ESG rating is an assessment produced by an ESG Rating Provider.
The information contained in a BRSR may feed into an ESG rating, but the two serve different purposes.
A company can therefore be compliant with its applicable reporting requirements and still identify areas for improvement in an ESG rating assessment.
This does not automatically mean that the company’s BRSR is inadequate.
It may indicate that the rating methodology considers additional information or evaluates disclosed information differently.
Companies should therefore manage BRSR and ESG ratings as connected but distinct processes.
The Importance of Data Transparency
One of the most important areas companies can control is the quality of their publicly available ESG information.
An ESG Rating Provider can only assess information that is available to it through the sources included within its methodology.
This makes transparency important.
Consider an organisation that has a strong energy efficiency programme but provides very limited public information about its energy consumption, targets, performance and outcomes.
The organisation may internally know that the initiative is effective.
But if the relevant information is not disclosed through the sources considered by the rating methodology, the rating provider may not have sufficient information to reflect that performance.
This does not mean companies should disclose information solely to improve their ratings.
The broader principle is that material sustainability performance should be communicated clearly and consistently.
Good ESG disclosure should allow stakeholders to understand what the company is doing, what its performance is, what its targets are and how progress is being measured.
Missing Data Can Become a Rating Issue
Data availability is another important consideration.
A company may have a policy but no measurable target.
It may have a target but no disclosed progress.
It may report a percentage but not explain the methodology behind the calculation.
It may disclose an initiative but provide no information about its outcome.
These gaps can make it difficult for an external evaluator to understand the company’s actual ESG performance.
The solution is not to produce large volumes of information.
It is to produce relevant, consistent and well-supported information.
For example, instead of simply stating:
“The company undertakes various energy efficiency initiatives.”
A stronger disclosure could explain the relevant initiative, the objective, the implementation period and the measurable outcome where the company has reliable information to report.
The level of disclosure should remain proportionate and appropriate to the company’s reporting framework.
Governance Can Influence the ESG Assessment
ESG ratings do not focus only on environmental performance.
Governance is a core component of ESG.
Companies therefore need to consider areas such as board oversight, ethics, anti-corruption systems, whistleblower mechanisms, risk management, related-party transactions, data privacy and other governance matters relevant to their sector and the applicable methodology.
A company may have strong environmental initiatives but still face questions around governance information.
This is why ESG should not be treated as an environmental function alone.
The quality of governance disclosures often depends on information maintained by legal, compliance, risk, internal audit, human resources, finance and other functions.
An effective ESG data management system therefore needs to cover all three dimensions of ESG.
Social Data Is Equally Important
Social information can also influence ESG assessments.
Companies may need to manage information relating to workforce composition, employee health and safety, training, diversity, human rights, labour practices, community engagement and other relevant social indicators.
Many of these metrics are already collected internally for operational or statutory purposes.
The challenge is often consistency.
For example, employee data may be maintained by HR while health and safety information sits with plant teams. Training information may be maintained separately from employee records. Human rights due diligence may sit with procurement or compliance.
If these datasets are not coordinated, the organisation can find it difficult to provide a consistent picture of its social performance.
This is another reason ESG rating readiness and ESG reporting readiness often overlap.
Both depend on reliable underlying information.
Controversies Require a Different Approach
ESG ratings may also consider controversies associated with a company.
This creates a different challenge from performance metrics.
A performance metric is generally based on data that the company reports.
A controversy assessment can involve information from external sources and may relate to an event, allegation, regulatory action or other development.
Companies therefore need a process for monitoring material external developments and ensuring that relevant issues are understood and appropriately addressed.
This does not mean companies can prevent every negative external assessment.
It means they should have appropriate mechanisms for identifying material issues, investigating them, taking corrective action where required and communicating relevant information accurately.
The distinction between an allegation and an established finding is particularly important in corporate communications.
Companies should avoid treating every media report as an established fact and should maintain appropriate internal processes for assessing external claims.
Why Methodology Understanding Matters
A common mistake is to look only at the final ESG rating.
A more useful approach is to understand the methodology behind the rating.
Companies should consider questions such as:
What ESG issues are assessed?
Which indicators are considered material?
What data sources are used?
How are different ESG factors weighted?
How are missing data points treated?
How are controversies incorporated?
How frequently is the rating updated?
What information can the company provide to clarify or correct factual information?
The answers will vary between providers.
There is therefore no single universal “ESG rating improvement checklist”.
The company’s first task should be to understand the specific assessment methodology relevant to the rating it is reviewing.
The Difference Between Improving Performance and Improving the Rating
This distinction is important.
A company should not redesign its ESG strategy simply to achieve a higher rating.
The objective should be to improve actual ESG management and performance.
A rating can then serve as one external reference point for understanding how those efforts are being assessed.
For example, if a company’s carbon emissions are materially high, the appropriate response should not be to focus only on how the emissions are disclosed.
The company should first understand the operational reasons for the emissions and determine whether there are meaningful opportunities to reduce them.
Similarly, if the company identifies weaknesses in occupational health and safety, the priority should be addressing the underlying risk rather than simply improving the way the information is presented.
This distinction helps prevent ESG management from becoming a score optimisation exercise.
ESG Ratings and the Risk of Data Inconsistency
One of the practical challenges for large organisations is that the same ESG information may appear in multiple places.
For example, employee data may appear in:
- BRSR
- Annual report
- Sustainability report
- ESG rating questionnaires
- Customer questionnaires
- Investor responses
- Internal management dashboards
If these figures are prepared independently, inconsistencies can arise.
A company may report one number in its BRSR and another number in a rating questionnaire.
Even where there is a legitimate reason for the difference, the organisation may find it difficult to explain.
This is why companies should establish a central source of truth for material ESG information.
The objective should be to ensure that different disclosures are based on the same underlying data unless there is a documented reason for using a different boundary, definition or reporting period.
Building an ESG Ratings Data Trail
A strong approach is to establish a traceable chain from the original information to the final disclosure.
For example:
Source data → ESG calculation → Internal review → Disclosure → External assessment
This can be particularly useful when responding to ESG Rating Providers.
If a rating assessment contains a factual discrepancy, the company should be able to identify the underlying source and provide relevant supporting information through the appropriate process.
The data trail also helps internally.
If management asks where a particular ESG figure came from, the organisation should not have to reconstruct the calculation from multiple spreadsheets.
It should be able to identify the source, methodology and approval trail.
ESG Ratings and Board Oversight
The increasing regulatory attention around ESG Rating Providers also highlights a broader governance question.
Does the board understand how the organisation’s ESG performance is being assessed externally?
For companies where ESG ratings are relevant to investors or other stakeholders, management may consider providing the board or relevant committee with periodic information on:
- Major ESG rating assessments
- Key methodology changes
- Significant rating movements
- Material data gaps
- Areas of disagreement with rating assessments
- Major ESG risks
- Progress against sustainability targets
The purpose is not to turn ESG ratings into board-level performance targets.
Rather, the information can help the board understand how external stakeholders may be interpreting the company’s ESG profile.
Companies Should Be Prepared for a More Structured ESG Ratings Market
SEBI’s existing regulatory framework already requires ESG Rating Providers to comply with prescribed obligations. The 2025 master circular consolidates applicable directions for ERPs, while SEBI’s February 2026 working group indicates that the regulatory framework is now being examined again in light of market feedback and global developments.
For companies, this is a useful point at which to review their own readiness.
They should not wait for another regulatory change before strengthening the quality of ESG information.
The fundamentals are relevant regardless of how the framework evolves:
Reliable data.
Consistent definitions.
Clear methodologies.
Documented evidence.
Strong governance.
Transparent disclosures.
These are useful not only for ESG ratings but for sustainability reporting more broadly.
What Companies Should Do Now
The first step should be to identify which ESG ratings and assessments are relevant to the organisation.
The second is to understand the methodology used by each relevant provider.
The third is to map the data required to support the assessment.
The fourth is to compare that requirement with information already available through the company’s BRSR, annual report, sustainability disclosures and internal systems.
The fifth is to identify gaps.
These gaps should then be divided into different categories.
Some may represent actual ESG performance weaknesses.
Others may simply represent disclosure gaps.
Some may arise because the organisation does not have the required data.
Others may result from differences in definitions or reporting boundaries.
This distinction is important because each type of gap requires a different response.
An actual performance weakness requires an operational or governance intervention.
A disclosure gap may require clearer communication.
A data gap may require improved data collection.
A methodology difference may require clarification.
ESG Ratings Should Be Used as a Diagnostic Tool
For companies, one of the more constructive ways to use ESG ratings is as a diagnostic input.
A rating assessment can help identify areas where external stakeholders may have limited visibility into the company’s performance.
For example, a company may discover that it has strong internal practices but limited public disclosure.
Another company may discover that it has extensive disclosures but insufficient measurable targets.
Another may identify a genuine performance weakness.
These are different situations.
The appropriate response should therefore be based on the underlying issue rather than the rating itself.
This approach also helps avoid treating ESG ratings as an end in themselves.
The ultimate objective remains better ESG management and more credible corporate information.
The Broader Implication for Indian Companies
SEBI’s review of the ESG Rating Provider framework comes at a time when ESG information is becoming increasingly relevant to capital markets.
Companies are being evaluated not only on what they disclose but also on how effectively they identify, manage and communicate material ESG risks and opportunities.
The regulatory framework for ERPs is part of that broader market infrastructure.
As the framework develops, companies should expect greater attention to the quality and consistency of ESG information.
That does not necessarily mean every company needs to disclose more information.
It means the information that is disclosed should be reliable, relevant and capable of being supported.
From ESG Scores to ESG Management
The evolution of ESG ratings reflects a broader change in corporate sustainability.
Earlier, companies could approach ESG primarily as a reporting exercise.
Today, investors, lenders, customers and regulators increasingly expect organisations to demonstrate how ESG factors are incorporated into business management.
ESG ratings are one external expression of this shift.
But the rating itself should not become the objective.
The stronger approach is to build the systems, policies, governance structures and operational practices that genuinely improve ESG management.
When those systems are supported by reliable data and transparent disclosures, external assessments can become more meaningful.
How ESG360 Supports Organisations
ESG360 supports organisations in strengthening their ESG management systems, including ESG data management, materiality assessment, ESG policies, sustainability reporting, BRSR reporting and ESG performance analysis.
For companies seeking to understand or respond to ESG ratings, the starting point is not simply the rating score.
It is understanding the methodology, identifying the information being assessed, validating the underlying data and distinguishing between performance gaps and disclosure gaps.
A structured approach can help organisations create consistency between internal ESG data, regulatory disclosures and information provided to external stakeholders.
As SEBI reviews the regulatory framework for ESG Rating Providers, companies should use this period to strengthen the fundamentals that sit behind their ESG information.
Because a credible ESG profile is not created by a rating.
It is created by the systems, performance, governance and evidence that the rating is attempting to assess.