For a considerable duration, global attention was predominantly directed towards economic advancement, often at the expense of environmental considerations. However, the surge in environmental activism has led to an escalating recognition that both individuals and businesses bear a responsibility to conscientiously manage resource consumption and curtail their carbon footprint.
The unregulated pursuit of capitalism, marked by exploitative and opportunistic practices, has resulted in imbalanced and uneven progress, exacerbating the gap between affluent and underprivileged segments of society. In contemporary times, people, governments, and policymakers are acutely attuned to this situation, advocating for more comprehensive and inclusive development strategies.
Furthermore, instances of corporate fraud and governance lapses within ‘too-big-to-fail’ entities have underscored for investors that sustainable returns hinge on the adoption of robust governance practices.
This transformative shift in mindset has given rise to the concept of ESG (Environmental, Social, and Governance) investing, whereby funds specifically target businesses adhering to sound environmental, social, and governance principles.
On a global scale, the assets managed by ESG investors have experienced a significant surge in recent years, reaching the trillions. Concurrently, businesses are actively endeavoring to align with ESG principles. Within this context, ESG reporting has gained mainstream prominence, with regulatory bodies worldwide introducing frameworks for ESG disclosures.
In India, this momentum was initiated by the government’s push in 2011 through the issuance of the National Voluntary Guidelines by the Ministry of Corporate Affairs (MCA). Subsequently, the Securities and Exchange Board of India (SEBI) introduced Business Responsibility Report (BRR) norms, initially encompassing the top 100 listed companies by market capitalization. This ambit was subsequently expanded to include the top 500 and eventually the top 1000 by 2019.
Notably, these efforts received a substantial boost when the MCA unveiled its National Guidelines on Responsible Business Conduct in 2019, aligning with the United Nations’ Sustainable Development Goals (SDGs). SEBI then translated these into the Business Responsibility and Sustainability Reporting (BRSR) norms in 2021.
While SEBI stipulated mandatory reporting under these norms from the fiscal year 2022-23 onward, it remained voluntary for the preceding fiscal year, yet over 175 companies voluntarily disclosed their ESG-related information.
ESG reporting plays a pivotal role in enabling businesses to showcase their ESG maturity to potential investors. To ensure transparency and guard against deceptive reporting and ‘greenwashing,’ some form of assurance and oversight is deemed essential. In parallel to the rigorous independent audits undertaken for financial reporting, it stands to reason that similar assurance mechanisms should be established for ESG disclosures.
In this vein, SEBI issued a consultation paper in February 2023, proposing the requirement for reasonable assurance for select key elements of BRSR, designated as BRSR Core.
Moreover, recognizing the potential for companies to showcase superficial ESG adherence while transferring non-compliant practices to their value chain partners, SEBI also proposed ESG disclosures for the value chain.
Following extensive consideration of stakeholder feedback, SEBI released a circular in July 2023, delineating the mandates for ESG disclosures and assurance. Under the new directive, the top 1000 listed entities are obligated to provide highly detailed BRSR disclosures spanning a comprehensive 40-page format.
For the top 150 entities, disclosure requirements for BRSR Core are set to commence from the fiscal year 2023-24, with a gradual extension to cover the top 1000 entities by the fiscal year 2026-27.
‘BRSR Core’ pertains to nine specific aspects of BRSR, encompassing the company’s greenhouse gas emissions (including scope 1 and scope 2 emissions), water consumption and discharge, energy consumption, waste management emphasizing circularity, employee well-being and safety measures, gender diversity as reflected in POSH (Prevention of Sexual Harassment) complaints and female employee wages, inclusive development through job creation in smaller towns and sourcing from MSMEs, equitable engagement with customers and suppliers (including data breaches and accounts payable), and business transparency in dealings with trading houses and related parties, as well as loans, advances, and investments with related entities.
In a parallel effort, ESG disclosures for the value chain are slated for the top 250 entities starting from the fiscal year 2024-25, with adherence being either mandatory or requiring an explanation. These disclosures will be subject to ‘limited assurance’ from the fiscal year 2025-26.
To ensure the credibility of assurance providers, SEBI mandates that they possess the requisite expertise and exhibit no conflicts of interest.
Compliance with this comprehensive circular undoubtedly represents a substantial undertaking but is deemed essential in light of India’s commitment to realizing the United Nations’ Sustainable Development Goals.
