Rating FAQ’s

Both ESG score and ESG rating are same and can be used interchangeably.

ESG scoring is applied in diverse ways across the market to meet specific needs of its users. Banks, financial institutions and other debt investors may utilize ESG scoring at their discretion to inform decisions related to capital allocation, assessing non-financial risks, and lending and funding strategies.

Furthermore, ESG ratings enable equity investors to incorporate environmental, social, and governance factors into their investment strategies. This allows investors to identify companies that align with their values, manage risks, and potentially Achieve sustainable long-term returns. ESG scores also facilitate comparisons between companies within and across industries aiding investors in making more informed choices.

Under CareEdge-ESG’s issuer-pays model, the rated entity pays for the ESG ratings. There is a written contractual agreement between the entity and the ERP, the agreement contains provisions specified by SEBI.

Kindly refer to the website for the detailed withdrawal policy. Our withdrawal policy is in line with the prevailing regulatory framework.

Yes, the regulatory framework has ensured standardization of ESG ratings by enabling comparability across ERPs through a standardized score (0-100). The publication of rating rationale has brought uniformity in the structure of reporting.

ESG Ratings is a rating product marketed as an opinion 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 is issued using a defined ranking system of rating categories, whether or not these are explicitly labelled as “ESG ratings”. CareEdge provides ESG Ratings.

Whereas, traditional financial rating, also called credit rating, is essentially the opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligations as and when they arise. Credit Ratings are provided by CARE Ratings Limited.

ESG Ratings considers a lot of factors into the ESG assessment of the issuer. CareEdge-ESG has used statistical methods to arrive at the relevant weightages that are proprietary to CareEdge-ESG. The final outcome also takes into account various factors and controversy related data while arriving at the final decision. To ensure consistency and reliability, several qualified professionals are involved in the rating process. Ratings are assigned by Committees, not individuals. CareEdge-ESG also ensures that the rating process is insulated from any conflicts of interest.

The ratings issued byCareEdge-ESG are opinions about an issuer or a security, regarding its ESG profile and relative position in managing ESG Risk through disclosures policies and performance. These are not recommendations to sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor. The agency does not constitute an audit on the rated entity.

An ESG rating is a professional opinion given after studying all available information at a particular point of time. Nevertheless, such opinions may prove non-relevant in the context of subsequent events. Further, there is no privity of contract between an investor and a rating agency, and the investor is free to accept or reject the opinion of the agency.

Nevertheless, rating is essentially independent, and CareEdge-ESG maintains the highest possible level of analytical competence and integrity. Overall, the credibility of an ESG rating provider shall be built on the quality of its services.

An ESG rating can be assigned either to an issuer (the company being assessed) or to a specific security or financial instrument (funds raised by a company). While ESG Rating of a security or instrument considers characteristics specific to that instrument including the end use of the funds, the ESG Rating of a company adopts a more holistic approach. This includes evaluating the company’s ESG policies, strategies, initiatives, targets and the overall impact of its ESG performance.

To ensure consistency and reliability of ESG ratings, CareEdge-ESG employs qualified & experienced professionals with relevant expertise. The ratings are determined by a committee quorum.  While extensive quantitative analysis is fundamental, the final ratings also incorporate qualitative factors, adding subjective dimension to the assessments.

To maintain reliability and consistency, CareEdge-ESG uses a standardized scoring framework that adjusts theme and pillar weights based on the industry. The framework includes key indicators derived from global and national standards, industry benchmarks, peer comparisons, and materiality considerations.

ERPs are governed by the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, which outline guidelines for ERP registration, general obligations, inspection procedures, and a code of conduct that ERPs must follow.  CARE ESG Ratings Limited is registered with SEBI as ‘Category 1’ ERP.

CareEdge-ESG has a comprehensive rating methodology that draws on key performance indicators described in various domestic & global standards. Salient features of methodology are:

• The methodology flows from the three pillars of E, S, G into 24 themes and further 360+ key indicators
• Industries are categorized into 58 industries and 200 sub-industries.
• Sources of indicators are BRSR, LODR (Listing Obligations and Disclosure Requirements), Companies Act 2013, and other global standards.
• The performance indicators are categorized by risk, materiality, relative proportionality and activity. 
• The scoring also incorporates controversy multiplier or any key material development.

(Kindly refer to www.careedgeesg.com for detailed methodology)

ESG stands for Environmental (E), Social (S) and Governance (G). Companies report their non-financial performance, risks, and opportunities related to sustainability practices based on these 3 pillars.

These ESG pillars comprise of various themes. Below mentioned are few examples:

• Environment includes Effluent & waste, Climate change & risk management, and carbon & other emissions.
• Social pillar comprises of Employee health & safety, Supply chain, Human capital and Human rights 
• Some of the themes under Governance pillar are Business ethics, Board Functioning and  Board compensation

ESG Ratings is an assessment of a company’s performance on environmental social and governance aspects based on their policies, disclosures, initiatives and performance metrics. ESG Ratings provide standardized performance scores for companies based on a consistent scoring framework.  ESG Ratings are provided by SEBI registered ESG Rating Providers.

The ESG rating rationale covers following key aspects:.

• Current ESG rating/score
• Change in rating/score from the previous review
• Summary of key drivers comprising qualitative and quantitative factors
• Summary of controversies and their impact
• Pillar wise scores & weights of Environment, Social and Governance pillars
• Summary of or link to methodology used.
• Rating sensitivity factors and their potential impacts

ESG Ratings is a comprehensive and detailed exercise. It involves, among other things, disclosure tracking, data collection, incidence and controversy tracking, and thorough discussion with the management of the issuer. The process timelines vary from 4 to 8 weeks depending on flow of information and time taken to schedule and conduct meetings with key stakeholders.

CareEdge-ESG offers the following primary products: ESG Ratings, Transition Score, Core ESG Rating, & Core Transition Score as defined in SEBI Master Circular for ESG Rating Providers SEBI/HO/DDHS/POD3/P/CIR/2024/45, dated May 16, 2024.

Further, CareEdge-ESG incorporates transition assessment in its ESG ratings or Core ESG ratings.

An ESG Rating or score provided by CareEdge-ESG is not a recommendation to buy, hold, or sell a debt instrument and/or an equity of the rated entity. An ESG rating may be used as one of the analytical inputs by investors, customers, employees, or other stakeholders to understand the company’s relative standing on matters related to sustainability as outlined by CareEdge-ESG using its ESG scoring framework.

CareEdge-ESG conducts an annual review of each entity’s ESG Rating. A rating represents assessment based on information available at a specific point in time. However, should there be any material developments, CareEdge-ESG may also conduct an interim review.

Yes, the ESG rating rationale is available on the website of CareEdge-ESG  www.careedgeesg.com for the individuals to access.