Complete Overview of ESG Reporting in India

Enterclimate

10 Sep, 2022

Environmental, Social, and Governance (ESG) is a term used to describe a set of non-financial standards a company inculcates in their working for better governance, ethical practices, environment-friendly measures and social responsibility. ESG Reporting is the report prepared by these companies on the social, environmental and governance parameters. The report is designed to provide a snapshot of the business’s impact in these three areas for investors.

Role of SEBI in ESG Reporting

Securities and Exchange Board of India(SEBI)has recently introduced ESG reporting requirements for the top 1,000 listed companies based on their market capitalisation. SEBI has stipulated that the disclosure must be made through a new format, i.e., the Business Responsibility and Sustainability Report (BRSR)^[1]. BRSR aims to establish a link between the financial results of the business with its ESG performance. SEBI mandated these sustainability reporting requirements by listed companies to enable businesses to engage with their stakeholders more meaningfully. These companies will have to share quantifiable yardsticks, allowing investors to compare them across companies, sectors, and periods before investing.

A brief history of ESG Reporting in India

In 2009, the Ministry of Corporate Affairs (MCA) issued Voluntary Guidelines on Corporate Social Responsibility as a first step toward mainstreaming the responsibilities of businesses in India. This was further refined as National Voluntary Guidelines (NVG) on Social, Environmental and Economic Responsibilities of Business, 2011. Since then, the reporting landscape has seen many developments. SEBI introduced the requirement of ESG reporting in 2012 and mandated the top 100 listed companies by market capitalisation to file a Business Responsibility Report (BRR). Its scope was later extended to the top 500 listed companies in 2015.

Again in 2019, the Ministry of Corporate Affairs released the National Guidelines on Responsible Business Conduct (NGRBC) as an improvement over NVG. The recently introduced Business Responsibility and Sustainability Report (BRSR) in 2021replaced the BRR as the new format of ESG reporting. BRSR reflects the principles of the National Guidelines on Responsible Business Conduct (NGRBC). NGRBC is based on the United Nations’ Sustainable Development Goals (SDG) and intends to provide a single framework to disclose all relevant information.

Advantages of ESG Reporting

In recent times, ESG reporting has gained importance with Indian businesses too. By focusing on non-financial factors, i.e., people and the planet, in their ESG reporting, Indian companies can develop a positive image among investors. This can serve as a metric for guiding investment decisions wherein increased financial returns are no longer the sole objective of investors. The significance of Environmental, Social, and Governance Reporting can be better understood by analysing the following growth parameters –

Growth in Revenue: Aligning with the ESG principles helps companies to expand existing markets and provide new avenues for growth. This can be possible by opening up a new market space and creating new demand, thereby creating and capturing uncontested market space.

Enhanced Public Image: ESG-compliant companies have easy access to resources like natural, financial, human talent, etc., at a lower cost.

Increasing Employee Productivity: Integrating ESG with the company’s ecosystem instils a ‘purpose-driven life’ among the employees to excel in their jobs.

Reducing Costs/Risks: Through ESG Reporting, grievances of shareholders, as well as concerns of employee rights, can be met. This will, in return, result in fewer penalties and enforcement actions by authorities.

Preparing an ESG Report on BRSR structure

Many ESG-focussed funds have been launched in India recently, and many more are lined up for the future. These investments largely follow a triple-bottom-line approach, combining financial returns with environmental and social norms. This hints at the need for ESG reporting as per the new format, i.e., the BRSR introduced by SEBI.

BRSR format uses more specific and quantifiable metrics than the BRR format. The report is divided into3 parts.

• Section A: General Disclosures: In the first section, general information about the company and the disclosures must be furnished. Details of the products and services, operations of the entity, employees, holding, subsidiary and associate companies, Corporate Social Responsibility(CSR) and disclosure compliances are present in this section.
• Section B: Management and Process Disclosures: This part of ESG reporting focuses on the policies and processes relating to the NGRBC principles to understand whether the company has taken measures to ensure responsible business conduct.
• Section C: Principle-Wise Performance Disclosures: This section is the most detailed one and requires the company to provide information on how it performs in respect of each NGRBC principle. This section is further sub divided into two parts, an ‘essential’ section and the ‘leadership’ section.
  • The essential section comprises mandatory disclosures. The essential components include data on training programmes conducted, emissions, water and waste, environmental data on energy and the social impact generated by the company. Companies disclose information on key performance indicators like life cycle assessments, conflict management policy, the breakup of energy consumption, additional data on biodiversity, emissions and supply chain disclosures.
  • The leadership indicators can be voluntarily disclosed by businesses aspiring to advance to a higher level in the quest to be environmentally, socially, and ethically responsible.

Documents needed to prepare an ESG Report

You will need the following documents for ESG reporting –

• Documents regarding potential risks to the environment and measures to handle them.
• ESG-related documents showing the initiatives being afforded by the company.
• Documents on the company’s governance indicating oversight mechanism on ESG strategy, policies and information.
• Report on management issues like actions, schemes, targets and initiatives to generate and preserve value for the company and stakeholders.
• Performance documents that support sustainability outcomes from business activities.

Conclusion

Businesses now realise the short and long-term risks presented by climate change and the importance of being future-ready while seizing the opportunities coming along with changes. The mapping of ESG regulations reveals that there has been a gradual widening of the scope of these policies. It is also indicated that ESG reporting is moving away from a voluntary regime to a mandatory one. Such reporting has helped attract attention from investors and customers, domestically and worldwide. Global studies show that companies inculcating ESG into core business practices outperform their competitors.