Last month, the Securities and Exchange Board of India (SEBI) came out with a holistic regulatory framework for ESG disclosures by India Inc, investors, and rating agencies to facilitate a balanced approach to ESG.

“In order to enhance the reliability of ESG disclosures, the BRSR (Business Responsibility and Sustainability Report) Core should be introduced, which contains a limited set of key performance indicators (KPIs), for which listed entities must obtain reasonable assurance,” SEBI said.

Quantifiable parameters

According to SEBI, initially top 150 listed companies will have to disclose and obtain a reasonable assurance on BRSR Core parameters from FY24 and that will be gradually extended to the top 1,000 listed entities by FY27.

The parametes are quantifiable under nine broad themes — such as change in GHG footprint, change in water footprint, investing in reducing its environmental footprint, embracing circularity (details related to waste management by the entity), enhancing employee well-being and safety, enabling gender diversity in business, enabling inclusive development, and fairness in engaging with customers and suppliers.

Under these themes, there are about 50 KPIs to facilitate comparability of the disclosures. The KPIs capture important metrics that are reflective of sustainable outcomes in companies.

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The BRSR core contains factors that are relevant to both the manufacturing and service sectors and are more relevant especially in the Indian context, as attributes such as job creation and inclusive development are considered.

Besides, ESG disclosures and assurance (BRSR Core only) should be introduced for the value chain of listed entities, with certain thresholds that should be specified, SEBI said. To start with, SEBI said these requirements of disclosure and assurance should be applicable to the top 250 listed entities (by market capitalisation), on a comply-or-explain basis from FY25 and FY26, respectively.

Thinking desi

Considering that emerging markets have a different set of environmental and social challenges, ESG Rating Providers (ERPs) should be required to consider India/Emerging Market parameters in ESG Ratings.

“However, there would be no constraints on their issuing other/additional ratings as required by their clients,” the regulator added.

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SEBI also mandated ESG schemes to invest at least 65 per cent of AUM in listed entities, where assurance on BRSR Core is undertaken. Fund managers’ commentary and case studies, which inter-alia highlight how the ESG strategy is applied on the fund/ investments, should also be disclosed.

These are all good initiatives by SEBI to improve credibility and address the risk of mis-selling and greenwashing, when ESG funds are attracting heavy inflow in recent times. Besides, the move will also help fund managers to look at the ESG concept holistically, especially in the Indian context, and boost ESG investing.

It’s time for all stakeholders to pursue the agenda with a clear vision, to make ESG investing more understandable.