Introduction
As corporate India pivots toward a sustainable future, the importance of Environmental, Social, and Governance (ESG) standards is escalating. Currently, in India, ESG reporting is primarily shaped by Securities and Exchange Board of India’s (SEBI) requirements for major listed companies.
Existing Regime & Developments
In May 2021, SEBI introduced a significant reporting requirement on ESG parameters through the BRSR by amending regulation 34 (2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). The BRSR Core Framework requires listed companies to disclose their performance against nine key ESG indicators. By FY 2023-24, the top 150 listed entities must obtain external assurance for these disclosures, with this requirement extending to the top 1,000 entities by FY 2026-27.
Additionally, the BRSR Lite Framework was also introduced which offers a simplified ESG reporting option for unlisted companies. Starting from FY 2024-25, the top 250 listed entities are also required to disclose information about their value chains. To further enhance transparency and accountability, SEBI issued guidelines for ESG Rating Providers, introducing standard ESG Ratings, Core ESG Ratings, and the ‘Parivartan’ score.
In terms of ‘Green Debt Securities’, SEBI provided an updated framework, as detailed in the February 2023 Gazette notification, which mandates issuers to ensure funds are used for genuinely sustainable projects and not for purposes outside the green debt security definition. Issuers must monitor and report the environmental impact, avoid misleading claims, and maintain transparency. These changes are part of Chapter IX-A of the Operational Circular and are designed to protect investors and promote a sustainable securities market.
Expert Committee Recommendations on BRSR
The legal framework governing ESG reporting is constantly evolving to ensure that the Indian jurisdiction aligns with international standards. By updating regulations and guidelines, India seeks to create a robust legal environment that supports sustainable business practices and enhances transparency in ESG reporting.
In pursuance of this, SEBI, in a press release dated October 4, 2023, sought suggestions to simplify compliance processes under various regulations, including the LODR Regulations. The Expert Committee reviewed public feedback on the LODR Regulations and related circulars, focusing particularly on the Business Responsibility and Sustainability Report (BRSR) regulatory framework. The committee’s report, which includes comprehensive recommendations and their justifications, has been reviewed internally and by the SEBI ESG Advisory Committee.
On 22 May 2024, SEBI released a consultation paper based on the Expert Committee’s report which proposed changes to the BRSR, introducing key amendments that were aimed at improving the system’s efficiency and promoting ease of doing business (Consultation Paper). The Consultation Paper sought to gather comments, views, and suggestions from the public and other stakeholders regarding the Expert Committee’s recommendations aimed at facilitating ease of doing business. The Consultation Paper proposed the following key amendments:
- Redefining the term ‘value chain’ to refer to:
- 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 was also proposed (a) 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 (b) 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.
- Addition of a new leadership indicator under the BRSR in view of the Green Credits framework introduced by the Ministry of Environment, Forest and Climate Change. The proposed leadership indicator, focusing on tracking the generation of Green Credits as outlined in the Green Credit Rules, 2023, would cover Green Credits generated by the company itself as well as its value chain partners.
- Replacing the term ‘assurance’ with ‘assessment’ in the LODR Regulations and SEBI circulars on BRSR. This change allows listed companies to choose either ‘assessment’ or ‘reasonable assurance’ for BRSR Core disclosures during FY 2023-24, providing flexibility based on their specific needs and resources.
Conclusion
These recommendations aim to simplify reporting requirements, emphasize materiality, align with global standards, and encourage digital reporting. These changes are designed to make the BRSR more user-friendly and aligned with international best practices, thereby facilitating ease of doing business while promoting responsible and sustainable corporate behavior. Overall, the recommendations are expected to benefit both businesses and stakeholders by fostering greater transparency, accountability, and sustainability in the corporate sector.
That said, challenges persist, particularly regarding the standardization and sector-specific adaptation of reporting requirements. Further, implementing these recommendations could also face challenges such as complexity and resource constraints might hinder companies from effectively adopting the new reporting standards, ambiguity and inconsistencies on account of need to align with multiple global frameworks, data collection and accuracy hurdles, and challenges of ensuring stakeholder engagement and understanding, as diverse stakeholder groups may have varying expectations and levels of awareness about sustainability issues. However, addressing these challenges through clear guidelines and collaborative efforts among stakeholders will be crucial. As Indian corporations continue to adapt and innovate, the focus on sustainability and ethical governance will undoubtedly strengthen the nation’s position in the global marketplace, promoting long-term, responsible growth.