The global community is negotiating its ways to mitigate climate change and its impact while assuring that no severe effects are felt on business operations and the environment.
India is making an aggressive move toward ESG reporting and disclosure by mandating market players to disclose sustainable ways of operation
Businesses are integrating Environmental, Social, and Governance (ESG) disclosures into their marketing strategy to attract more consumers. This is in line with the policies adopted by Indian regulators, which implies that India is making an aggressive move toward ESG reporting and disclosure by mandating market players to disclose sustainable ways of operation. Special focus is being given to preparing the foundational principles and framework enabling businesses to run conscientiously while maintaining transparency and accountability in reporting.
ESG Disclosures in India: Evolution
The ESG reporting framework by Indian organizations has witnessed significant improvements since 2020. The ongoing advancements are the results of the market regulator SEBI’s push for ESG disclosures. This has led to an increase in the number of organizations positioning ESG data, from 127 in FY20 to 330 in FY22.
- The Companies Act of 2013 introduced the first ESG disclosure requirements for organizations. Section 134(m) commands enterprises to present a report curated by the Board of Directors on the conservation of energy.
- In 2017, SEBI published a report on ‘Disclosure Requirements for Issuance & Listing of Green Debt Securities’. This report presented a regulatory framework for the issuance of green debt securities in India.
- In 2021, SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework in May 2021, which required the top 1000 companies by market cap to disclose their ESG performance.
The stark advancement in the ESG disclosures was reported based on their integrated reports, sustainability reports, as well as BRSR.
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As contemplated in the Union Budget FY24, green growth is perceived to be a top agenda for the government, along with the commitment to achieve carbon neutrality. It has therefore become pertinent for all industries to put their ESG metrics in place. Many Indian enterprises are taking steps to enhance their ESG performance by
- cutting down on their carbon footprints
- enhancing the working conditions of their employees and
- addressing the growing consciousness of consumers for the environment and society.
Regulatory bodies are also pushing on various fronts like non-financial disclosures, sustainable finance, and the empanelment of ESG rating providers to further strengthen ESG evaluation. These developments will further motivate organizations to align their strategies with sustainable business practices.
Introduction of the BRSR Framework
To further strengthen its ESG disclosure regime, SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework, replacing the existing Business Responsibility Report (BRR). BRSR aligns with the nine principles of the National Guidelines for Responsible Business Conduct or NGBRC and will be mandatory for the top 1,000 listed companies. Enterprises will have to annually disclose their ESG-related information from the financial year 2022-23 onward. With an aim to enhance ESG-compliant business practices in India, the framework also encloses the following aspects:
- Disclosure of adequate guidelines and mechanisms for an organization to remain ESG-compliant
- Considerable emphasis on quantifiable metrics for comparison across sectors and time periods
- Focused guidelines for climate and social-related issues
- Interplay for organizations already publishing their sustainability reports under other internationally recognized frameworks.
Almost 18% of the target enterprises voluntarily disclosed the BRSR data in FY22.
- The energy and utilities sector witnessed almost 50% of organizations reporting on ESG parameters, signaling the transition toward long-term ESG commitments along with a visible shift toward green energy resources.
- The rising ESG reporting awareness among financial institutions has triggered them to adopt ESG practices in their operations.
These goals align with the government’s push on India’s commitment to achieving Net Zero emissions by the year 2070.
Harnessing the Power of Data for a Sustainable Future
Environmental impact, social disruptions, and governance inefficiencies are strongly influencing stakeholder views of corporate resilience and adaptation. An interplay of stakeholder demand and regulatory compliance is actively contributing to the need for organizations to strategize, measure, and improve indicators of ESG.
With the ESG reporting and disclosure landscape witnessing a significant change, there has been the emergence of voluntary reporting frameworks and standards that are set to pave the way for standardized reporting
With the ESG reporting and disclosure landscape witnessing a significant change, there has been the emergence of voluntary reporting frameworks and standards that are set to pave the way for standardized reporting. This significant first step towards shifts in performance to meet ambitious targets for a sustainable future is enabling organizations to adopt mandatory ESG paths and enforce transparency.
Corporations are now beginning to ensure their data availability by employing data collection methods to identify the reporting gaps and modify the existing practices. They are now employing new measures to design a strategic approach to sustainability.
Opportunities for Growth
The Indian business environment is yet to be fully exposed to the practices and benefits associated with ESG. Except the industry behemoths, any initiative from the rest of the industry has been lacking compared to their international peers. This widening gap between the leaders and the laggards provides a massive opportunity for the industry to scale up rapidly and achieve proficiency in ESG disclosure.
Multiple factors in the form of regulatory requirement, stakeholder demand, and improved business prospects provide the necessary incentives for organizations to invest in sustainable business operations and eventually disclose ESG performance in accordance with global standards and frameworks.
The guidelines presented by Indian regulators highlight that India is making an aggressive transition toward decarbonization by nudging and mandating industry leaders to adopt sustainable business policies and regulations.
New technology and data management software has made it easier for organizations to connect every department for streamlined data measurement and collection
One of the critical indicators of India’s transition is the adoption of comprehensive sustainability and ESG disclosures to encourage companies to scrutinize beyond the traditional finance-centric models. ESG disclosures enable companies to determine the potential transition risks and ways to self-assess their ability to sustain in the future. Organizations need to undertake the necessary steps to adjust to future changes.
Forward-looking organizations have started reporting their ESG performances, complying with globally accredited frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), Climate Disclosure Project (CDP), and Integrated Reporting (IR).
A recent FIS’s Global Innovation Report (GIR) 2023 identified that financial services firms in India perceive ESG as an opportunity to attract raised investment. Today, almost 90% of organizations are investing in tech to enhance their ESG disclosures.
One of the key enabling factors for the increasing ESG disclosure is the adoption of technology. New technology and data management software has made it easier for organizations to connect every department for streamlined data measurement and collection. Artificial intelligence tools can assist investors in identifying the underlying risks as well as opportunities, thereby helping to increase transparency and reliability.
Stakeholder demand has also incentivized organizations to investigate their business practices, with asset managers and shareholders pushing for more transparent non-financial disclosure as they strive for sustainable investments and a greener portfolio. This has caused even private companies to take notice and be cognizant of the evolving stakeholder demands to attract future investments.
The ESG assessment is a crucial aspect of a company’s growth strategy, as it presents a roadmap for sustainable practices. Organizations are prioritizing ESG considerations to equip themselves better as well as to navigate the challenges of the changing business landscape.
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Today, India is gradually advancing toward developing ESG policies and regulations. And with the BRSR framework, SEBI has presented a comprehensive sustainability reporting framework. The Indian government has also been taking prominent steps to promote ESG investing. There is a growing interest of investors in India to invest in corporations that have a positive effect on the environment and society. And this can be witnessed by the growing number of ESG funds and indices in the Indian market.
By committing to an accurate and reliable ESG assessment, enterprises can create long-term value and contribute to the greater good to foster positive change. Several factors are contributing to the growth of ESG policies, including government regulations, corporate initiatives, as well as consumer preferences, making the future of ESG in India promising and prominent.
Guest contributor Jayaprakash Mallikarjuna is the Head of ESG Services & Data Modernization at SG Analytics, a global insights & analytics company that focuses on ESG, data analytics, and investment & market research services. Any opinions expressed in this article are strictly that of the author.