Second Party Opinions Bolster ESG Market Credibility

Second Party Opinions (SPOs) are playing an increasingly pivotal role in ensuring that environment, social, and governance (ESG)-labelled financial products adhere to global standards, thus preserving their credibility with investors. A report from ICRA ESG Ratings Limited highlights how SPOs, acting as independent assessments, enhance transparency, curb greenwashing risks, and solidify trust in sustainable finance. This development follows a June 2025 circular from the Securities and Exchange Board of India (SEBI), mandating ESG debt securities issuers, including social and sustainability bonds, to engage independent third-party reviewers. These reviewers will verify compliance with recognized standards and ensure the proper management of proceeds, project selection, and impact reporting.

ICRA ESG Ratings recently unveiled its SPO service, promising to scrutinize the sustainability claims of issuers. Chief Rating Officer Sheetal Sharad stated, "By rigorously evaluating an issuer's ESG framework--encompassing the use of proceeds, governance mechanisms, and international standards alignment--ICRA ESG helps issuers affirm their sustainability commitments. This empowers investors by ensuring their capital supports genuinely sustainable initiatives, mitigating greenwashing risks, and enhancing confidence in the ESG debt market." The report also notes a substantial growth in India's ESG debt issuance, with the volume reaching USD 55.9 billion, driven largely by green bonds, which comprise 83% of the total ESG-aligned issuance.

The role of SPOs is expected to expand further in sustainable finance, as the market anticipates steady growth fueled by a rising demand for transparency and reliable ESG assessments, propelled by evolving regulations. As explained in the report, an SPO is a one-time assessment that remains valid as long as the underlying debt financing framework remains unchanged. This additional layer of scrutiny is crucial for bolstering trust in ESG debt markets, particularly at a time when global investors are increasingly prioritizing sustainability-linked investments.

(With inputs from agencies.)