ESG Reporting in India: Balancing Profit, People, and Planet

With the turn of almost a quarter of a century since the launch of the first version of its guidelines by the Global Reporting Initiative (GRI), and keeping pace with the enhanced Environmental, Social, and Governance (ESG) consciousness across the globe, the concept of ESG reporting has gained significant traction in recent years. Just last year, the International Sustainability Standards Board (ISSB) published the first ever set of global reporting standards ushering in a new era of ESG reporting and disclosures.

 

ESG Fundamentals

• Environmental: This criterion comprises inter alia elements such as management of resources, waste disposal, energy source and usage, animal welfare, and the revelation of environmental policies. Effective stewardship of the environment and wise management of resources can stimulate growth and enhance profit margins, while also securing a competitive advantage in today’s day and age.
• Social: This criterion focuses on value creation by fostering community spirit and propagating diversity and inclusivity for a discrimination and bias free work environment, safe working conditions, health benefits, mental health support, work-life balance policies, and regular employee engagement activities. Conscious strides to this effect not only contribute towards higher employee satisfaction, retention and productivity for a company but may also boost its social perception.
• Governance: This criterion encompasses several key aspects such as a company’s level of regulatory compliance in day-to-day operations, tax strategies, responsible and transparent business governance, management and stakeholder engagement and risk management strategies. Good corporate governance is as much about creating value as it is about building trust, protecting stakeholder’s interests, and fostering social acceptance by promoting equitable wealth distribution and ethical business practices.

 

Global Trends

Countries across the world have adopted ESG regulatory frameworks and reporting and compliance requirements that are singular and felicitous to their overall regulatory regime. Each region has developed its own set of ESG standards and guidelines, reflecting diverse economic, social, and political contexts. For instance:

 

• United States

The United States of America (US) has a complex ESG regulatory environment influenced by both Federal and State regulations. Key regulatory bodies, such as inter alia the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC), play a significant role in shaping the ESG disclosure requirements. Most recently, On March 6, 2024, the SEC implemented new rules to standardise climate-related disclosures for public companies[1], mandating companies to disclose significant climate risks, their impacts on business strategies, and mitigation efforts, as part of their annual reports. The aim is to provide investors with consistent, comparable information, with phased implementation based on company size and filer status.

 

The FTC’s Green Guides[2], which have been in force since 1992, ban deceptive marketing related to a Company’s ESG claims and provides comprehensive principles of environmental marketing and Financial Stability Oversight Council, comprised of top US financial agency leaders the. State and local governments also enforce ESG risk management and disclosure.[3] The US also boasts a well-established framework of laws focusing on diversity, equity, inclusion, and accessibility in the workforce. Central to these efforts is the Civil Rights Act of 1964 (Title VII)[4], coupled with other key legislations such as the Equal Pay Act of 1963[5], the Americans with Disabilities Act, 1990[6] and the Age Discrimination in Employment Act, 1967[7] to name a few. In addition to the aforementioned, there are also the various State regulations across the 50 States that implement practices that are more tailored to their unique economic landscapes and environmental challenges.

 

Overall, while the SEC’s requirements provide a uniform standard for ESG disclosures across the country, the various State-level legislations and efforts add depth and flexibility to the ESG landscape in the US. They enable a more nuanced and comprehensive approach to sustainability, inclusivity, and corporate governance, ultimately contributing to a more robust and effective ESG framework in the U.S.

 

• European Union

In 2014, the EU Directive on ‘disclosure of non-financial and diversity information by certain large undertakings and groups’[8] (Non-Financial Reporting Directive/NFRD) established guidelines for the disclosure of non-financial and diversity information covering ESG aspects in the annual reports of specific large EU public-interest companies (around 11,700 EU firms), which are defined as those with over 500 employees, encompassing listed companies, insurers, and banks. The NFRD served two primary objectives: to provide stakeholders and investors with non-financial data for assessing companies’ value creation and risks and to prompt society to engage with social and environmental issues responsibly.

 

Additionally, the EU Taxonomy[9], introduced in 2018 as part of the EU Action Plan on Sustainable Finance and established by the ‘EU Technical Expert Group on Sustainable Finance’ to combat greenwashing and assist investors in selecting environmentally conscious investments, serves as a classification system that enables the categorisation of economic activities that significantly contribute to at least one of six defined environmental objectives., which include: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention, and control, protection, and restoration of biodiversity and ecosystems.

 

While the EU Taxonomy has been around since 2020, until January 1, 2023, it was not mandatory for large companies and financial market participants offering products and services within the EU to report on their alignment. Organisations are now required to publicly disclose the extent to which their turnover aligns with the EU Taxonomy criteria, indicating what is considered a ‘green’ or ‘sustainable’ economic activity. This was achieved by amending the disclosure requirements in the EU’s Corporate Sustainability Reporting Directive[10](CSRD) introduced in 2021 and the European Sustainability Reporting Standards, adopted in 2023.

 

Furthermore, the Sustainable Finance Disclosure Regulation[11] (SFDR) was also introduced, and it mandates ESG disclosure obligations for asset managers and financial market participants, effective from March 10, 2021. Level 1 disclosures require entity-level information on sustainability impacts, while Level 2 disclosures, effective from January 1, 2022, include detailed entity and product-level disclosures.

 

It is pertinent to note that apart from these directives applicable to the entire EU, member-countries tend to have their own national laws as well that are complimentary to the existing framework. For instance:

• In Germany, the Climate Change Act[12] establishes climate objectives and sets specific emission targets for various industry sectors. The Federal Environment Agency monitors emissions data for these sectors and publishes corresponding reports.
• The French Duty of Vigilance Law, 2017[13], mandates that certain categories of companies implement due diligence processes and policies to identify, prevent, and mitigate adverse human rights and environmental impacts within their own operations, as well as those of their subsidiaries and supply chains. It includes mechanisms such as complaints handling, periodic evaluation of measures, and annual reporting.

 

Similar to that of the US, the EU’s directives, implemented uniformly by member-countries complemented by their own laws, create an inclusive and tailored ESG compliance and reporting framework, accommodating each member country’s unique conditions, and ensuring a balanced approach to compliance and reporting.

 

Evolution of ESG Reporting Framework in India

India too, has actively engaged in developing guidelines and legislations over the past two decades to promote sustainable and socially responsible business practices. Notably, India adopted a unique approach to Corporate Social Responsibility (CSR), standing out as one of the few countries mandating that large companies allocate a minimum percentage of their profits towards social activities. This mandate reflects a commitment to corporate philanthropy, where businesses contribute to social causes based on their success and profits.

 

However, ESG compliance and reporting goes beyond CSR compliance. While CSR focuses on the ‘impact from the business,’ – how the company’s success and profits are used for social good, ESG reporting addresses the ‘impact of the business,’ – focusing on the very nature of the business and its production cycle. ESG reporting evaluates how a company’s operations affect society and the environment, providing a more comprehensive view of its sustainability and ethical practices.

 

In India, the evolution of ESG reporting has been in the direction of this broader perspective, encompassing not just corporate philanthropy but also the overall impact of business activities. This holistic approach helps stakeholders better understand and assess a company’s commitment to sustainability, ethical governance, and social responsibility, thereby encouraging more responsible and transparent business practices across the nation.

 

The legal framework for ESG reporting in India is multifaceted, involving various regulations and guidelines that aim to promote transparency and accountability in business practices, and has undergone significant transformation over the past two decades.

 

The Indian ESG reporting framework combines legally binding regulations and voluntary governance codes in addition to the principles laid down in the Indian Constitution, as well as the plethora of sector-specific legislations, rules and regulations. Compliance is mandatory for certain entities, with obligations varying based on the entity’s size. Additionally, industries are categorised by their pollution levels, affecting where they can operate under the Environment Protection Act of 1986. This categorisation ranks industries based on their pollution load into four categories: Red, Orange, Green, and White, in descending order of pollution severity[14]. Industries with high pollution loads, particularly those in the red category, are restricted from operating in ecologically sensitive areas.

 

 

The cornerstone of the Indian ESG reporting framework is the Securities and Exchange Board of India (SEBI), which has introduced ESG metrics within the Business Responsibility and Sustainability Report Core (BRSR Core) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). At present, provisions of the LODR Regulations provide for the sole mandatory ESG reporting requirement for Indian companies. Beyond regulatory mandates, the government has also introduced soft measures to promote sustainable business practices. These include incentivizing renewable energy use and sustainable business operations through policies, subsidies, and favorable tax treatment, aligning with the goal of achieving carbon neutrality by 2070.[15]

 

The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) released by the Ministry of Corporate Affairs (MCA) in 2011 provided a comprehensive framework for responsible business conduct in India, refining the 2009 Corporate Social Responsibility Voluntary Guidelines with inputs from diverse stakeholders. Applicable to all businesses regardless of size, sector, or location, the guidelines emphasised a ‘triple bottom-line’ approach, balancing financial performance with social and environmental responsibilities. They consisted of nine principles, each supported by core elements to operationalise them, covering ethical conduct, transparency, safety, sustainability, and stakeholder engagement. Businesses were encouraged to integrate these principles into their core operations and value chains, fostering a culture of responsibility.

 

Subsequently, the Business Responsibility Report (BRR) was introduced in India in 2012 to be included as part of the annual reports to be filed by the top 100 listed Indian companies by market capitalisation. Its format is based on the NVGs. The evolution of Business Responsibility Reporting in India began with the Corporate Voluntary Guidelines in 2009 and was further influenced by India’s endorsement of the United Nations Guiding Principles on Business & Human Rights in 2011. The Committee on Business Responsibility Reporting proposed two formats for disclosures: a comprehensive format and a Lite version. These formats allow listed companies to disclose their adoption of responsible business practices to all stakeholders. The BRR was applicable to all types of companies – manufacturing entities as well as service provider entities.

 

By 2017, however, the MCA was of the view that the NVGs needed updating due to several factors such as inter alia: significant international and national developments in business responsibility since their 2011 release, provisions of the UN Guiding Principles on Business and Human Rights, the UN Sustainable Development Goals, the Paris Agreement on Climate Change, the 2017 ratification of ILO Core Conventions 138 and 182 on child labour, SEBI’s 2012 mandate for Annual Business Responsibility Reports and the MCA’s CSR requirements under the Companies Act, 2013. To address these updates and emerging ESG risks and advanced compliances and standards, extensive reviews and multi-stakeholder consultations were conducted, leading to the development of the National Guidelines for Responsible Business Conduct (NGRBC) as an enhanced version of the NVGs. The NGRBC were made applicable to all businesses in India, regardless of ownership, size, sector, or location, including foreign MNCs. They emphasised that businesses should not only adhere to these guidelines within their control but also encourage their suppliers, vendors, distributors, partners, and collaborators to follow them.

 

Extant SEBI Framework on ESG Reporting

In May 2021, SEBI introduced the principal reporting requirement on ESG parameters under the BRSR by amending regulation 34(2)(f) of the LODR Regulations[16] thereby replacing the BRR standards and requiring the top 1,000 listed companies to make ESG reporting as part of their annual report. The BRSR aims to provide quantitative and standardised disclosures on ESG parameters, facilitating comparability across companies, sectors, and time, with the view of assisting investors in making more informed investment decisions. Additionally, the BRSR encourages companies to engage more effectively with their stakeholders by highlighting not only financial performance but also social and environmental impacts. This broader perspective supports a more comprehensive approach to understanding corporate performance and sustainability.

 

Essentially, the BRSR seeks disclosures from listed entities on their performance against the nine principles of the NGBRC.[17] Reporting under each principle is divided into essential and leadership indicators. Essential indicators are mandatory, while leadership indicators are voluntary.

 

• BRSR Core Framework

As mentioned above, SEBI introduced the BRSR Core as a subset of the BRSR, focusing on the following nine key performance indicators[18]:

• Greenhouse Gas Footprint: Companies are required to disclose their total Scope 1 and Scope 2 emissions, providing a detailed breakdown by type of gas, including CO2 (carbon dioxide), CH4 (methane), N2O (nitrous oxide), and other greenhouse gases. Additionally, companies must report their emission intensity, which is calculated relative to both their revenue and their product output.
• Water Consumption: A company’s BRSR Report must include detailed information on total water consumption and the associated water consumption intensity. This intensity can be measured directly or derived from input and output water flow meters. Providing these metrics ensures comprehensive reporting on water usage, offering insights into the company’s efficiency and impact in managing water resources relative to their operations or production levels.
• Energy Footprint: Companies must report their total energy consumption, specifying the percentage from renewable sources. They must also disclose energy intensity, which is measured per unit of revenue or product/service output. This report ensures transparency regarding energy use and efficiency in relation to financial performance and production.
• Circularity and Waste Management: This section covers plastic, e-waste, biomedical, and construction waste generated and managed. It focuses on the total waste generated, recovered, and disposed of through various methods.
• Employee Wellbeing and Safety: This section should report the cost of employee wellbeing measures as a percentage of total revenue, along with details of safety incidents. It must also include the lost time injury frequency rate and the number of fatalities. These metrics provide essential information on employee safety and wellbeing within the company.
• Gender Diversity in Business: Companies must report the percentage of total wages allocated to female employees, providing insight into gender pay equity. Additionally, they must disclose the number of sexual harassment complaints received, including details on how these complaints were addressed, to demonstrate their commitment to creating a safe and equitable workplace.
• Inclusive Development: Indicators in this context include the percentage of input materials sourced from MSMEs, as well as the number of jobs created in smaller towns. These metrics provide information on the company’s procurement practices and their impact on local employment.
• Fairness in Customer and Supplier Engagement: This section tracks data breaches, customer data loss incidents, and the number of days accounts payable remain outstanding.
• Openness of Business: Companies must report the concentration of their purchases and sales with trading houses and related parties, including a breakdown of these transactions. This disclosure should also include relevant financial metrics, such as the total value of transactions with these entities and their impact on the company’s financial performance.

 

To ensure reliability and prevent greenwashing, listed companies are required to obtain external assurance for their ESG indicators. Additionally, ESG rating providers must develop a separate ‘Core ESG Rating’ based on third-party assured or audited data disclosed by companies. This requirement will initially apply to the top 150 listed entities by market capitalization starting from financial year (FY) 2023-24 and will be extended to the top 1,000 listed entities by FY  2026-27.

 

This initiative aims to enhance transparency and accountability in ESG reporting, ensuring that every company’s sustainability claims are credible and verifiable. By implementing these measures, the regulatory framework seeks to foster trust among investors and stakeholders, promoting a more sustainable and responsible business environment. The phased approach allows companies to gradually adapt to the new requirements, ensuring a smooth transition and widespread adoption of robust ESG practices across the corporate sector.

 

• BRSR Lite Framework

The Committee on Business Responsibility Reporting (Committee) acknowledged that currently, only the top 500 listed companies have experience with business responsibility reporting. For many other companies, the proposed BRSR would be their first attempt at sustainability reporting. Thus, a report[19] by the Ministry for Corporate Affairs (MCA) proposed the introduction of a ‘BRSR Lite Framework’ for unlisted companies, covering the essential aspects of ESG reporting. This framework would enable smaller unlisted companies below a certain threshold (to be prescribed) to voluntarily adopt a simplified BRSR format. The goal is to implement reporting requirements gradually, allowing smaller companies time to adapt and learn from larger ones. This phased approach aims to equip smaller companies with the readiness and knowledge to report on ESG-related matters, ultimately promoting transparency, accountability, and sustainability within the corporate sector. By providing a simplified reporting framework, the initiative seeks to encourage more companies to begin sustainability reporting, aligning with global best practices and addressing the unique challenges and opportunities within the Indian corporate landscape.

 

• Value Chain Disclosure

A ‘value chain’ encompasses the entire lifecycle of a product or process, covering material sourcing, production, consumption, and disposal or recycling. Under the BRSR Core framework, listed companies must disclose detailed value chain information in their annual reports. This covers significant partners both upstream (suppliers) and downstream (distributors/retailers) who together represent 75% of the company’s purchases or sales. This disclosure requirement applies to the top 250 listed entities by market capitalisation. Additionally, from FY 2025-26, these disclosures will be subject to limited assurance requirements. This mandate aims to provide transparency into the company’s value chain, enhancing accountability, fostering sustainable practices throughout their operations, and integrating ESG factors into the company’s decision-making process.

 

• Guidelines for ESG Rating Providers

SEBI has implemented extensive guidelines for ESG rating providers, bringing them under the purview of the SEBI (Credit Rating Agencies) Regulations, 1999.[20] Under these regulations, ESG rating providers are required to issue both standard ESG Ratings and Core ESG Ratings, along with a unique ‘Parivartan’ score. The Parivartan score is designed to evaluate a company’s efforts in transitioning toward more sustainable practices. It takes into account recent advancements, ongoing changes, and future plans for managing risks and capitalizing on opportunities related to sustainability. A high ‘Parivartan’ score suggests that the company is not only actively mitigating sustainability-related risks but is also enhancing its resilience and adaptability to future uncertainties.

 

• Proposed Amendments to BRSR Framework

On May 22, 2024, SEBI released a consultation paper based on an expert committee report that proposed significant amendments to the BRSR framework[21] (Consultation Paper), aimed at improving the efficiency of the existing BRSR framework and facilitate a more business-friendly reporting environment. Following are the key proposals under the Consultation Paper

 

• Assurance vs. Assessment: The Consultation Paper proposes the replacement of the term ‘assurance’ with ‘assessment’ in the BRSR Core disclosures, thereby providing listed companies with the option to choose between ‘assessment’ and ‘reasonable assurance’ for their BRSR Core disclosures. This change is intended to offer greater flexibility to companies, allowing them to select the level of scrutiny that best fits their needs and available resources. By allowing companies to opt for assessment rather than reasonable assurance, SEBI aims to reduce the burden of compliance and make the BRSR process more adaptable to varying levels of organisational capability and resource availability.

 

• Value Chain: With a view to enhance reporting efficiency, the definition of the term ‘value chain’ is proposed to be defined to include:
  • both upstream (suppliers) and downstream (distributors/retailers) partners, with each partner individually accounting for 2% or more of the listed entity’s purchases or sales (by value); or
  • both upstream (suppliers) and downstream (distributors/retailers) partners, with each partner individually accounting for 2% or more of the listed entity’s purchases or sales and cumulatively comprising at least 75% of the entity’s total purchases or sales (by value), thereby bringing down the maximum number of value chain partners considered from 50 partners with a 2% threshold to 38 partners under the same threshold and 75% cut-off.

 

In this regard, it has also been proposed:

• That a listed entity shall disclose the percentage of total sales and purchases covered by the value chain partners for which ESG disclosure is provided; and
• To replace the traditional ‘comply or explain’ approach for value chain ESG disclosures and their assurance with the ‘voluntary disclosure approach’, thus allowing companies to go beyond mandatory ESG reporting requirements by voluntarily sharing additional information about their sustainability practices. Unlike the ‘comply or explain’ approach, which focuses on strict adherence to predefined rules, the voluntary approach encourages transparency and proactive reporting.

 

• Green Credits: Inclusion of a significant new leadership indicator for the BRSR introduced by the Ministry of Environment, Forest, and Climate Change, focusing on tracking the generation of Green Credits as outlined in the Green Credit Rules, 2023.[22] This indicator covers the activities of the company itself as well as its value chain partners towards their efforts in afforestation and provides a calculation method for the same. The inclusion of Green Credits in the BRSR extends beyond a company’s internal operations, mandating that companies also account for and report the Green Credits generated by their value chain partners. This holistic approach ensures that sustainability efforts are integrated throughout the entire supply chain, promoting a collective commitment to environmental stewardship.

 

Overall, the amendments proposed in the Consultation Paper seek to modernise and streamline the BRSR framework, making it more flexible and efficient while enhancing transparency and accountability in ESG reporting. By adopting these changes, SEBI aims to support businesses in their sustainability reporting efforts, reduce compliance burdens, and foster a more transparent and accountable reporting environment. Amendments pursuant to the proposals made in the Consultation Paper are yet to be notified.

 

RBI’s Draft Reporting Framework

On April 23, 2021, the RBI made a significant commitment to environmental responsibility and sustainable finance by joining the Central Banks and Supervisors Network for Greening the Financial System (NGFS). [23] This strategic move underscores the RBI’s dedication to integrating environmental considerations into its financial oversight and policymaking. The NGFS was established during the Paris One Planet Summit in 2017, with the goal of uniting central banks and financial supervisors from around the globe. The network’s mission is to foster collaboration, share best practices, and address the risks posed by climate change and environmental degradation within the financial sector. By bringing together these key financial authorities, the NGFS aims to drive mainstream finance towards supporting a more sustainable global economy.

 

As a member of the NGFS, the RBI gains valuable access to a broad spectrum of knowledge and expertise from leading central banks and financial supervisors worldwide. This membership provides the RBI with insights into advanced green finance practices, enabling it to enhance its own strategies and policies related to sustainable finance. By participating in the NGFS, the RBI is positioned to contribute to and benefit from global efforts to integrate environmental sustainability into financial systems, thereby advancing India’s capability to manage and mitigate climate-related financial risks. This alignment with the NGFS reflects a broader commitment by the RBI to not only adapt to the evolving landscape of sustainable finance but also to actively contribute to the global movement towards a greener financial system.

 

Until 2024, the RBI had yet to bring into force any specific ESG reporting requirements, over and above the SEBI framework discussed above. However, on February 28, 2024, the RBI released a ‘standard Disclosure framework for Regulated Entities on Climate-related Financial Risks’.[24] The Draft Disclosure Framework on Climate-Related Financial Risks, 2024 (Draft) mandates that regulated entities (listed out below) disclose information about climate-related risks and opportunities in their standalone annual reports in addition to the reporting requirements prescribed under the SEBI regulations. It aims to facilitate early risk assessment and market discipline.

 

The Draft is designed to enhance the assessment and management of climate-related financial risks, provide clear disclosure of these risks and opportunities to support informed decision-making, and establish consistency and comparability in climate-related financial disclosures across reporting entities. This approach aims to improve the overall clarity and effectiveness of climate risk management and reporting.

 

The draft framework will be applicable to the following Regulated Entities (REs):

• All Scheduled Commercial Banks (excluding Local Area Banks, Payments Banks and Regional Rural Banks);
• All Tier-IV Primary (Urban) Co-operative Banks;
• All All-India Financial Institutions (viz. EXIM Bank, NABARD, NaBFID, NHB and SIDBI);
• All Top and Upper Layer Non-Banking Financial Companies[25].

 

These guidelines focus on the following ‘Thematic Pillars’:

• Governance: The governance section should outline the processes, controls, and procedures employed by the reporting entity (RE) to identify, assess, manage, mitigate, monitor, and oversee climate-related financial risks and opportunities. This includes detailing the role of the RE’s board of directors in overseeing climate-related risks and opportunities and the involvement of senior management in assessing and managing these risks and opportunities.

 

• Strategy: This section should describe the RE’s strategy for addressing climate-related financial risks and opportunities. It should disclose the identified climate-related risks and opportunities across short, medium, and long terms, as well as the impact of these risks and opportunities on the RE’s business, strategy, and financial planning. Additionally, the resilience of the RE’s strategy should be assessed in the context of various climate scenarios.

 

• Risk Management: The risk management section should detail the RE’s processes for identifying, assessing, prioritizing, and monitoring climate-related financial risks and opportunities. It should specify whether and how these processes are integrated into the RE’s overall risk management framework. This includes describing the policies and processes used for managing climate-related risks and the extent to which these processes inform the RE’s overall risk management.

 

• Metrics & Targets: Disclosures on metrics and targets should cover the RE’s performance concerning climate-related financial risks and opportunities. This includes reporting progress towards any climate-related targets set by the RE, as well as any statutory or regulatory targets. The metrics should align with the RE’s strategy and risk management processes and include Scope 1, Scope 2, and Scope 3 greenhouse gas emissions and related risks. Additionally, the section should outline the targets used to manage climate-related risks and opportunities and the performance against these targets.

 

With such parameters, the RBI hopes to build a holistic system which ensures that relevant dimensions are considered, providing a complete picture of the ESG compliance levels in entities that are regulated specifically under RBI’s purview, over and above the framework of SEBI regulations.

 

The framework is proposed to be made effective as follows:

 

Regulated Entities	Governance, Strategy and Risk Management	Metrics & Targets
Scheduled Commercial Banks, All-India Financial Institutions, and Top and Upper Layer NBFCs	FY 2025-26 onwards	FY 2027-28 onwards
Tier IV Urban Co-operative Banks	FY 2026-27 onwards	FY 2028-29 onwards
Other REs	To be announced in due course

 

While the final framework remains to be formally issued by the RBI, time is ripe for REs to familiarize themselves with the prescribed requirements and works towards necessary internal capacity building for appropriate and timely compliance with this new disclosure framework upon its notification.

 

Challenges and Considerations in ESG Reporting

India has made significant progress in implementing legislative and regulatory measures related to ESG reporting, but certain challenges still remain. Despite numerous rules, regulations, and formats for ESG reporting, the scope and extent of disclosures may still appear to be unclear, making it difficult for companies to determine what specific aspects need to be reported. Additionally, for many companies, BRSR reporting requirement may appear to be a one-size-fits-all model, posing adaptation struggles for corporates in alignment with their specific sectors and industries. The social and governance parameters also vary from industry to industry while leaning more on the subjective. The challenge thus lies in balancing standardised reporting with the unique nuances of each industry, whilst ensuring data relevance for extrapolation – quite the tight rope walk for regulators.

 

The need for a more localised approach to ESG compliances and consequent reporting, as is the case in the US and EU, is also worth considering. Being a quasi-federal country with all the relevant subjects of ESG in the concurrent list, it may very well be appropriate for States within India to frame codes of governance that are applicable within their jurisdictional limits – the compliance and reporting whereunder can supplement the requirements prescribed under Central legislations.

 

Conclusion

As India’s economy approaches the $4 trillion mark[26], the evolution of the ESG compliance and reporting system in India represents a welcome and much needed development to build stakeholder trust and confidence by promoting transparency, accountability, and sustainability within the industry. The legal framework for ESG reporting in India is evolving to meet the demands of a changing global landscape considering the increasing interest of investors in this subject has made reporting a company’s best practices move beyond a legal obligation. Companies with a stellar ESG profile are becoming progressively attractive for investors as well as consumers across the globe. Evidently, the level of compliance in India remains at a nascent stage given presently only the top 1,000 listed companies are statutorily required to comply with these requirements. However, the advantages of implementing ESG focused policies have begun to outweigh any considerations that a company may have against such disclosures requirements.

 

*****

[1] Securities and Exchange Commission, The Enhancement and Standardisation of Climate-Related Disclosures for Investors, 33-11275 (2024), https://www.sec.gov/files/rules/final/2024/33-11275.pdf.

[2] Federal Trade Commission, Revised Green Guides, 1-30 (2012), https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-issues-revised-green-guides/greenguides.pdf.

[3] U.S. Department of the Treasury, Financial Stability Oversight Council Report on Climate-Related Financial Risk (2021), https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf

[4] Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (1964), https://www.eeoc.gov/statutes/title-vii-civil-rights-act-1964.

[5] U.S. Dep’t of Labor, Equal Pay for Equal Work, https://www.dol.gov/agencies/oasam/centers-offices/civil-rights-center/internal/policies/equal-pay-for-equal-work (last visited July 20, 2024).

[6] Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq. (1990).

[7] Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621-634 (2024), https://www.eeoc.gov/statutes/age-discrimination-employment-act-1967.

[8] Directive 2014/95/EU on disclosure of non-financial and diversity information, 2014 O.J. (L 330) 1 EU, https://eur-lex.europa.eu/EN/legal-content/summary/disclosure-of-non-financial-and-diversity-information-by-large-companies-and-groups.html

[9] European Commission, EU Taxonomy for Sustainable Activities, https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en.

[10] Directive 2022/2464, of the European Parliament and of the Council of 14 December 2022, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting, 2022 O.J. (L 322) 15, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464.

[11] Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088, 2020 O.J. (L 198) 13.

[12] Federal Climate Change Act (Bundes-Klimaschutzgesetz), Bundesministerium für Umwelt, Naturschutz und nukleare Sicherheit (BMU), https://www.bmuv.de/fileadmin/Daten_BMU/Download_PDF/Gesetze/ksg_final_en_bf.pdf.

[13] French Corporate Duty of Vigilance Law, RESPECT International, https://respect.international/french-corporate-duty-of-vigilance-law-english-translation/ (last visited July 20, 2024).

[14] Central Pollution Control Board, Government of India, Final Document on Classification of Industrial Sectors Under Red, Orange, Green, and White Categories, https://cpcb.nic.in/openpdffile.php?id=TGF0ZXN0RmlsZS9MYXRlc3RfMTE4X0ZpbmFsX0RpcmVjdGlvbnMucGRm (last visited July 19, 2024).

[15] Press Release, Ministry of Environment, Forest and Climate Change, Gov’t of India, Net Zero Emissions Target, Press Information Bureau (Aug. 3, 2023, 5:04 PM), https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1945472.

[16] Securities and Exchange Board of India, Gazette Notification – Securities And Exchange Board Of India (Listing Obligations And Disclosure Requirements) (Second Amendment) Regulations, 2023, https://www.sebi.gov.in/sebi_data/commondocs/jul-2023/Gazette_notification-LISTING_OBLIGATIONS_p.pdf  (last visited July 19, 2024).

[17]Securities and Exchange Board of India, Circular No. SEBI/HO/CFD/CMD1/CIR/P/2021/562, Business Responsibility and Sustainability Reporting by Listed Entities (May 10, 2021), https://www.sebi.gov.in/legal/circulars/may-2021/business-responsibility-and-sustainability-reporting-by-listed-entities_50096.html.

[18] Securities and Exchange Board of India, Annexure I – Format of BRSR Core, https://www.sebi.gov.in/sebi_data/commondocs/jul-2023/Annexure_I-Format-of-BRSR-Core_p.pdf.

[19] Ministry of Corporate Affairs, Notification No. 11/2020, Report of the Committee on Business Responsibility Reporting (Aug. 11, 2020), https://www.mca.gov.in/Ministry/pdf/BRR_11082020.pdf.

[20] Securities and Exchange Board of India, Credit Rating Agencies Regulations, 1999 (last amended on July 4, 2023), available at https://www.sebi.gov.in/legal/regulations/jul-2023/securities-and-exchange-board-of-india-credit-rating-agencies-regulations-1999-last-amended-on-july-4-2023-_74002.html/

[21] Securities and Exchange Board of India, Consultation Paper on the Recommendations of the Expert Committee for Facilitating Ease of Doing Business with Respect to Business Responsibility and Sustainability Report (BRSR), (May 22, 2024), https://www.sebi.gov.in/reports-and-statistics/reports/may-2024/consultation-paper-on-the-recommendations-of-the-expert-committee-for-facilitating-ease-of-doing-business-with-respect-to-business-responsibility-and-sustainability-report-brsr-_83551.html.

[22] Ministry of Environment, Forest, and Climate Change, Gazette Notification-Green Credit Rules, 2023, No. 249377, (June 21, 2023), https://egazette.gov.in/WriteReadData/2023/249377.pdf.

[23] Reserve Bank of India, Press Release: RBI Joins Network for Greening the Financial System, (Apr. 29, 2021), https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51496.

[24] Reserve Bank of India, Disclosure Framework on Climate-related Financial Risks, 2024, https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4393.

[25]  The RBI had issued the Scale Based Regulation: A Revised Regulatory Framework for NBFCs on October 22, 2021, which categorises NBFCs in Base Layer, Middle Layer, Upper Layer and Top Layer and gives the methodology to identify the NBFCs in the Upper Layer as per their asset size and scoring methodology. The entire list can be found at Reserve Bank of India – Press Releases (rbi.org.in).

[26] International Monetary Fund, Data Mapper: India, https://www.imf.org/external/datamapper/profile/IND (last visited July 22, 2024).