- Define ESG.
- Pointwise mention how ESG norms have evolved in India.
- Mention the salient features of SEBI’s BRSR guidelines.
- Conclusion – significance of ESG framework.
The term ‘ESG’, stands for all environmental, socioeconomic, and governance concerns, is consequently gaining traction in the business and corporate sector. ESG is about pursuing responsible and ethical business practices with attention to social and environmental equity along with economic development. ESG is fast becoming synonymous with sustainability. The term ESG was coined in 2004 by the former UN Secretary-General Kofi Annan.
How has the ESG norms evolved in India ?:
- ESG reporting in India started in 2009 with the Ministry of Corporate Affairs issuing the National Voluntary Guidelines on Corporate Social Responsibility (NVGs).
- In 2012, SEBI mandated that the top 100 listed companies by market capitalisation file the Business Responsibility Report (BRR) based on NVGs along with annual reports. BRR was extended to the top 500 listed companies by market capitalisation in 2015 and to the top 1,000 listed companies in 2019.
- CSR activities have been made mandatory under The Companies Act, 2013 for companies falling under the prescribed category.
- Integrated Reporting (IR) was introduced by SEBI in 2017 voluntarily for the top 500 companies required to prepare BRR.
- The National Guidelines on Responsible Business Conduct (NGRBC) came in 2019.
- Business Responsibility and Sustainability Report (BRSR) was introduced in 2021 on a voluntary basis and made mandatory from FY2022-23.
Salient features of SEBI’s Business Responsibility and Sustainability Report guidelines ?:
BRSR is a standardised reporting format that will provide a basis to compare environmental, social and governance goals across companies and sectors.
The BRSR guidelines are more elaborate and stringent than the existing BRR norms. BRSR incorporates metrics of international frameworks on par with global ESG reporting trends. It is a significant step towards bringing sustainability reporting at par with financial reporting.
Some of the key disclosures sought in the BRSR are:
- Sustainability related goals & targets and performance against the same;
- Environmental disclosures related to resource usage (energy and water), air pollutant emissions, greenhouse (GHG) emissions, transitioning to a circular economy, waste management practices, extended producer responsibility, biodiversity etc.;
- Social disclosures covering the workforce, value chain, communities and consumers, that include:
- (i) Employees/workers: Gender and social diversity including measures for differently-abled employees and workers, turnover rates, median wages, welfare benefits, occupational health and safety, training etc.;
- (ii) Communities: Disclosures on Social Impact Assessments (SIA), Rehabilitation and Resettlement, Corporate Social Responsibility etc.;
- (iii) Consumers: Disclosures on product labelling, product recall, consumer complaints in respect of data privacy, cyber security etc.
The 9 principles of National Guidelines of Responsible Business Conduct (NGRBC) are aligned in the BRSR report.
The BRSR report serves as a single comprehensive source of information on non-financial sustainability measures to all the relevant key stakeholders of the business and the public at large.
Salience: ESG reporting norms are likely to play a bigger role in how companies are assessed, not only by investors but by consumers and stakeholders. The ESG frameworks are a process of standardisation, which will reduce the scope of misrepresentation and greenwashing. Greenwashing is the act of giving a false image or giving false information about how an organisation’s products are more environmentally friendly.
Global acceptance of the ESG mandate is increasing. For instance the participation percentage for assessing the ESG performance of organisations on a global scale increased, going from 19% in 2019 to 33% in 2021. In India, the assets of ESG-based market funds (equity and debt) have risen to over INR 12,300 crore in November 2021, from INR 2,630 crore, in November 2019.
BRSR Guidelines will bring in more transparency in ESG reporting, thus attracting greater investments in socially-responsible and environmentally-sustainable companies. This will prompt corporates to adopt sustainable measures.