The Environmental Social and Governance (‘ESG’) reporting and disclosures has been the hottest trend in investor markets for a while now. These public disclosures & reporting are with an intent to get companies to commit to a socially responsible and sustainable agenda which is performance oriented. It is also with a social vision to promote environmental awareness, sustainability goals and investor awareness.
In 2020 Securities and Exchange Board of India (‘SEBI’) introduced ESG Reporting in India for top 1000 listed companies & recently added disclosures to be made in a new format namely, the Business Responsibility and Sustainability Report (BRSR) mandatory. The Market regulator, SEBI through ESG Reporting has carved out a criteria for investors and society to assess companies on more parameters such as corporate transparency, disclosure practices, management style and its sustainable choices apart from the age old profit driven paradigm.
This is a big move for growing economy like India and reflects corresponding shift in mindset of investors. In past, India has been one of first countries to mandate Corporate Social Responsibility under Companies Act 2013 and have top 100 market cap companies to disclose indicators of business responsibility and sustainability through Business Responsibility Reporting (‘BRR’). The ESG reporting through BRR model directed by SEBI was also a step to promote sustainable practices in Indian market with the belief that businesses will only be successful in the long run if their models respect the triple bottom line of “profit, planet and people”.
The track record of Indian companies on ESG so far has been impressive with leading companies like Havells, Godrej Consumer Products, Marico, Vedanta, Welspun, Tata group companies making ESG disclosures regularly. Also, its commendable to see Indian companies like UltraTech, Tech Mahindra, Infosys and Wipro on Dow Jones Sustainability Indices (DJSI) internationally, which assesses the ESG performance of companies globally.
In past Indian companies used BRR for ESR disclosures. On May 10, 2021, BRR was replaced with BRSR by SEBI to upgrade India’s sustainability reporting to global standards.
The new reporting format outlines mandatory ESG policies and requirements for the top 1000 listed companies by market capitalization. The format is based on the nine principles stipulated in the National Guidelines on Responsible Business Conduct (‘RBC Guidelines’).
The RBC Guidelines are influenced by leading international standards, including the UN Guiding Principles on Business and Human Rights, UN Sustainable Development Goals, Paris Agreement, and International Labour Organisation (ILO) Core Conventions. The RBC Guidelines addresses key sustainability matters, such as business ethics and transparency, human rights, environmental safety, and fair labour practices.
The BRSR is aiming to provide uniform framework for ESG disclosures while emphasis on sustainability goals, demonstration of their sustainability objectives and increasing investors awareness to make conscious environmental and social decision-based investments.
Companies have been given time till FY 23 for mandatory disclosures allowing them time to adapt to this new reporting compliance. Disclosure details will have to provided related to company’s material environmental, social, corporate governance risks and opportunities, approach to mitigate or adapt to these ESG risks as well as relevant financial implications, sustainability related goals & targets and related performance. Emphasis on disclosing key management structures, policies and processes related to sustainability and also granular details like resource usage (energy and water) and intensity metrics, pollutant emissions have been taken into account. Attention has been given in formulating these disclosures categories especially ones related to waste management practices and impact on biodiversity.
From Governance standpoint, environment related awareness and education has been encouraged with emphasis on training on the principles stipulated in the RBC Guidelines for members of the Board, senior managers, and employees.
Over the years, companies’ filings ESG disclosures has taken a quantum leap which is encouraging and does help achieve global sentiment on environment awareness and sustainability issues. Since there were no earlier methodology of environment assessment for companies, ESG reporting was thought to serve as a sought of structured framework on how company’s tackle environmental issues linking it to company’s performance in this field.
In the past 2 decades, disclosure standards for reporting have been nonstandard, incomplete and inconsistent with some companies opting to follow Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI) and others following International Integrated Reporting Council (IIRC), Sustainability Accounting Standards Board (SASB) etc.
This has given to rise to changes to disclosure reporting from time to time such as implementation of new BRSR framework by SEBI in India to be more consistent with global trends. Countries like India will need to keep pace with the changing and evolving ESG disclosure frameworks around the globe. Without the elasticity quotient, the framework would do little to help corporates avoid multiple disclosures to satisfy their customers.
The companies are opting for standards to suit their needs at times, such as disclosing environmental considerations having financial risk only and not processes which have no material impact on their balance sheets. The option of only voluntary disclosures n Indian context gives rise to lack of transparency. Certain key essential parameters need to be formulated across irrespective of disclosure standards followed by companies.
Another key aspect of these disclosures is lack of uniformity in various sectors of the market. Same standards cannot be used for Oil & Mining, Energy Power, FMCG and other industries. Specific sector focused is required given diverse nature of activities and disclosures for example CO2 emissions are more relevant to Oil, Power and Mining than Banking. Construction and FMCG sector disclosures not only help in data analysis by Government agencies, social groups and Investors at large but also awareness on environmental challenges sector wise.
ESG disclosures have also given rise to a debate regarding output versus impact despite these environmental disclosures been implemented. There is growing noise about ‘green wishing by companies. The world has seen manifold rise in carbon emissions, pollution, climate change despite implementation of ESG reporting and disclosures. However, I do feel ESG reporting tool cannot and wasn’t meant to stop environmental and sustainability issue should focus more on sourcing, waste management procedures etc. Having specific sector ESG disclosures would not only help in data analysis by Government agencies, social groups and Investors at large but also awareness on environmental challenges sector wise.
ESG disclosures have also given rise to a debate regarding output versus impact despite these environmental disclosures been implemented. There is growing noise about ‘green wishing by companies. The world has seen manifold rise in carbon emissions, pollution, climate change despite implementation of ESG reporting and disclosures. However, I do feel ESG reporting tool cannot and wasn’t meant to stop environmental and sustainability issues.
In today’s world we cannot depend on governments, social awareness groups alone to create policies, accountability and enforcements on environment and climate change, companies need to acknowledge and embrace their corporate social responsibility with changing times on the way business is done across the world. The true significance of ESG reporting lies in creating awareness and collaborate on climate issues in corporate world, formulating goals and objectives, metrics and transparent reporting with clean data analysis, conduct impact assessment of business activities on our environment. Through ESG Reporting in right direction a powerful culture can to be created giving rise to new management styles and thought leadership focusing on enforcement of sustainability goals by corporate world for better tomorrow.
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