Decoding the SEBI’s push for ESG accountability and its positive impact

BRSR mandates companies to report on sustainability, aligned with the nine principles of the NGRBCs

By Jaya Vaidhyanathan

Globally, there is an increase in awareness amongst stakeholders demanding that businesses integrate the ESG factors and periodically report the same. SEBI (Securities and Exchange Board of India), the regulatory body for the securities market in India, has been at the forefront of driving ESG imperatives amongst the corporates in India. SEBI introduced the BRSR (Business Responsibility and Sustainability Reporting) requirement in 2021 requires the top 1,000 listed companies in India to disclose their sustainability-related information in their annual reports. Such reporting was voluntary for FY 2021-2022 and is now mandatory from FY 2022-2023.

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The introduction of BRSR reporting has helped the ESG imperatives in many ways, including:

Comprehensive reporting

BRSR requires companies to report on a wide range of sustainability-related information, including their performance against the nine principles of the ‘National Guidelines on Responsible Business Conduct’ (NGRBCs). The reporting under each principle is divided into Essential Indicators and Leadership Indicators.

Standardization

The BRSR framework provides a standardized reporting format, enabling investors to compare different companies’ sustainability performance consistently. It helps investors identify companies that are better at managing ESG risks and opportunities, which can positively impact their investment decisions.

Accountability

By mandating BRSR reporting, SEBI is holding companies accountable for their sustainability practices. It encourages companies to be more transparent about their ESG performance and take steps to improve it, which can positively impact their reputation and long-term sustainability.

The push by SEBI has led to an increase in ESG reporting, with many companies increasing their ESG numbers from a paltry 127 in fiscal 2020 to 330 in the 2022 financial year.

The SEBI Board, most recently in March 2023, has recommended the following ESG-related requirements:

Introduction of BRSR Core

The SEBI has proposed introducing a Business Responsibility and Sustainability Report (BRSR) Core, which will contain a limited set of Key Performance Indicators (KPIs) for which listed entities must obtain reasonable assurance. The BRSR Core will be gradually extended from the top 150 to the top 1000 listed entities by FY 2026-27.

ESG Disclosure for the value chain of listed entities

ESG disclosures and assurance will be introduced for the value chain of listed entities, with certain thresholds that will be specified.

ESG Investing

To address the risk of incorrect selling and greenwashing, SEBI has proposed measures, including:

• Mandating ESG schemes to invest at least 65% of AUM in listed entities, where assurance on BRSR Core is undertaken
• Mandating third-party assurance and certification by Board of AMCs concerning compliance with ESG Scheme’s objectives
• Mandating enhanced disclosures on voting decisions, explicitly focusing on ESG factors
• Mandating disclosure of fund manager commentary and case studies on how the ESG strategy is applied to investments
• Enable the launch of multiple ESG-related schemes

ESG Rating

ESG rating providers (ERPs) must consider India’s or Emerging Market parameters in ESG ratings. The SEBI has also proposed introducing a regulatory framework for ESG rating providers in the Indian securities market.

The active role played by SEBI is crucial in driving ESG reporting and ensuring that this goes beyond being a regulatory requirement. It is not just about reporting but also about taking effective action. As the urgency for climate risk and sustainability increases, it is essential to focus on tangible outcomes rather than just reporting metrics. While ESG reporting is a critical step, it should be complemented by concrete actions that drive positive environmental, social, and governance impacts. The measures can include:

• Reducing carbon emissions.
• Using renewable energy sources.
• Improving supply chain transparency.
• Investing in employee training and development.
• Promoting equity, diversity, and inclusion in the workplace.

SEBI needs to continue its proactive approach to ensure that companies integrate the ESG factors in their business strategy and decision-making and that the same is transparent enough to all the stakeholders involved.

About the Author

Jaya Vaidhyanathan is the dynamic CEO of BCT Digital, steering the company towards innovative technological solutions.

Copy Right @ India CSR