Keeping in line with the global trend, India fares highly in ESG disclosures on a comparison scale with leading global economies. “Among the top listed companies in India, disclosure was over 50% in FY 2022-23. This is comparable to disclosures seen in the EU and US. Indian disclosures are improving rapidly, given the strong direction set by the market regulator SEBI. India could well become a trendsetter in the global ESG landscape,” says Shailesh Dhuri, CEO, Decimal Point Analytics.
Throwing light on India’s ESG reporting regulatory regime, Dhuri says SEBI maintains an “aggressive stance” on ESG reporting. While the market regulator had introduced the Business Responsibility Report (BRR) framework in 2012 as a voluntary reporting framework, it introduced a more detailed framework, the Business Responsibility and Sustainability Report (BRSR), in 2021.
BRSR was voluntary for the top 1,000 listed companies in FY 2021-22 and is mandatory for the top 1,000 listed companies in 2023.
“The BRSR format is by any yardstick the most comprehensive reporting guideline globally. SEBI’s construction of BRSR is painstakingly detailed, not comparable to any other regulatory regime anywhere in the world,” says Dhuri.
Shailesh Dhuri, CEO, Decimal Point Analytics
He adds that the US doesn’t even have a compulsory disclosure regime and in March 2022, the US SEC proposed certain rule changes that would require companies to include certain ESG disclosures on a mandatory basis from 2023.
This was expected to be made applicable from October 2022. “This deadline has long passed, there is no clarity of when the proposed rules would become final,” Dhuri states. “The EU has mandatory disclosure requirements, and its rollout plan is quite aggressive. We find SEBI leads in detail, EU leads in its coverage ambition.”
Titas Bhowmick, Senior Consultant-Growth Advisory, Aranca, says India’s ESG reporting regulatory regime is taking a principles-based approach, as opposed to a prescriptive one. “This suggests a framework that allows for flexibility in how companies meet their ESG disclosure obligations. SEBI has introduced ESG disclosures for Indian corporates and mutual funds, aiming to promote green financing and reduce the risk of greenwashing,” adds Bhowmick.
Outlook for the ESG reporting
Experts say while ESG is a global movement, it is important that we do not follow it blindly but build it in Indian ethos and localise it to suit the country’s requirements.
“Increasing coverage of ESG reporting requirements is another trend we can expect. The reporting regime will need to extend beyond the top 1,000 companies, eventually leading to unlisted MSMEs. As coverage expands, compliance and affordability will need to be considered,” says Dhuri.
Similarly, Bhowmick says there is an evident trajectory towards more sophisticated and integrated ESG practices. Regulatory bodies are poised to further refine the rules to ensure alignment with global standards, he adds.
“The future will likely witness an increased use of digital tools and AI to not only manage and report ESG data but also to drive actionable insights for companies. These technologies promise to streamline the ESG reporting process, enhance accuracy, and help businesses stay ahead of regulatory requirements. However, the present system can improve in terms of data reliability, collection methodologies, and ensuring that disclosures are not just tick-box exercises but reflect genuine sustainable practices,” says Dhuri.
Company board and ESG directives
Experts are of the view that for Indian company boards to adhere to ESG directives, a multi-faceted approach is needed.
“Regulatory frameworks must be backed by enforcement mechanisms to hold companies accountable for non-compliance. Furthermore, the incorporation of ESG matters into boardroom discussions and decision-making processes is vital. This could involve setting specific ESG targets, integrating ESG risk assessments into overall business risk frameworks, and transparently reporting on progress and challenges. Internal audits and third-party assessments can provide objective reviews of a company’s ESG performance,” says Bhowmick.
Companies will need to maintain a record of data used for disclosures, that can be audited and certified by third parties, say experts. “Globally, there have been cases where companies have been pulled up for greenwashing. Thankfully, no case of greenwashing has emerged in India as yet. However, boards of companies, particularly the independent directors, will need to be vigilant to ensure against greenwashing,” adds Dhuri.
