OECD report The Role of Capital Market Service Providers in Corporate Governance: Proxy Advice, ESG Ratings and Indices examines the expanding role of Capital Market Service Providers (CMSPs), including proxy advisors, ESG rating agencies, and index providers, in shaping corporate governance and capital allocation across global financial markets.
The report notes that these entities now exert significant influence over shareholder voting, ESG investing, and passive investment flows, giving them a central role in determining how trillions of dollars are allocated globally. However, their growing importance has outpaced regulatory oversight in many jurisdictions, raising concerns about transparency, conflicts of interest, methodological opacity, and concentration risk.
The OECD highlights a fragmented global regulatory landscape. While jurisdictions such as the European Union and the United States have introduced disclosure-based frameworks, several countries continue to rely primarily on voluntary standards. The report identifies a broader international shift toward mandatory registration, governance norms, and conflict-management requirements for these service providers
India is cited as a notable example of proactive regulation in this area. According to the report, SEBI has moved beyond voluntary guidelines by introducing formal oversight mechanisms for proxy advisors and proposing structured governance frameworks for ESG rating providers and index administrators.
The report concludes that stronger international coordination will be necessary to ensure that CMSPs enhance market integrity and investor confidence without creating new systemic vulnerabilities in increasingly interconnected financial markets.
Key Regulatory Challenges & Findings
Opaque Methodologies: Lack of transparency in how ESG scores and indices are constructed leads to inconsistent market outcomes.
Conflicts of Interest: Service providers often offer consulting to the same companies they rate or advise on, creating inherent bias.
Concentration Risk: A few global players dominate the market, potentially stifling innovation and creating "single points of failure" in governance.
Standardization Gap: The absence of universal definitions for ESG and index governance complicates cross-border investment.
Regulatory Asymmetry: Divergent rules across the globe allow for regulatory arbitrage, where providers move to less-supervised jurisdictions.
India Focus: SEBI’s Regulatory Approach
Proxy Advisors (The SEBI Model): India established a high benchmark through the SEBI (Research Analysts) Regulations, 2014, and 2020 guidelines. Unlike many global peers, Indian proxy advisors must register with SEBI, manage conflicts of interest, and allow companies to review and respond to advice before it is finalized.
ESG Ratings (Evolving Standards): India is actively formalizing the ESG landscape. Following a 2022 consultation, SEBI is implementing a framework that mandates registration, disclosure of data sources, and governance standardsfor ESG rating providers to prevent "greenwashing."
Index Providers: While global regulation for indices is still nascent, SEBI has moved ahead by seeking public comments on a proposed framework to enforce transparency in index construction and accountability for index providers.
Market-First Approach: India’s regulatory stance emphasizes investor protection and accountability, requiring that any clarification provided by a company on proxy advice must be communicated directly to the advisor's clients.
What are Capital Market Service Providers (CMSPs)?
Capital Market Service Providers (CMSPs) are specialised firms that provide investors with critical financial analysis, ratings, benchmarks, and voting advice that shape investment decisions across global markets.
The OECD identifies three major CMSPs with growing systemic influence: proxy advisors, which guide institutional shareholder voting; ESG rating agencies, which assess companies’ sustainability performance; and index providers, which create benchmarks such as the Nifty 50 or S&P 500, influencing large-scale capital flows through passive investment funds. As global investing becomes more data-driven and ESG-focused, these firms increasingly function as the information infrastructure of modern financial markets.
Policy Relevance
Strengthens Investor Protection: Greater oversight improves transparency and reduces conflicts of interest.
Improves Corporate Governance: Proxy advisory regulation can enhance accountability in shareholder voting processes.
Supports ESG Market Credibility: Standardized ESG frameworks help reduce greenwashing risks.
Protects Financial Stability: Oversight reduces risks arising from concentrated influence over capital allocation.
Positions India as a Regulatory Contributor: SEBI’s framework is increasingly being recognized within global governance discussions.
Follow the Full Report Here: The Role of Capital Market Service Providers in Corporate Governance Proxy Advice, ESG Ratings and Indices