Overview of Environment, Social Governance (ESG) Report

Environmental Social and Governance (ESG) reporting are the disclosure reports by a company covering its operations in three areas: environmental, social, and corporate governance. Companies worldwide are increasingly orienting themselves according to popular ESG practices. It helps them reflect positively on the direct and indirect effects of their operation on the environment and on the well-being of the stakeholders. ESG reporting by a company would indicate that they have a long-term vision for the 3 Ps, i.e. Profit, People, and the Planet. Therefore the report indicates that the business will work towards adopting ethical and socially just practices and not just working for financial gains. Environmental, Social and Governance (ESG) reporting can help the company to reflect a positive image among the investors. It provides a rundown of the impact of the business in these three areas for the investors. India has introduced ESG reporting requirements for the top 1,000 listed companies in the country by market capitalisation. The Securities and Exchange Board of India (SEBI) stipulates that the disclosure must be made through a new format, i.e. Business Responsibility and Sustainability Report (BRSR). BRSR aims to establish a link between the financial results of a business with its ESG performance. SEBI mandated these sustainability reporting requirements by listed companies to enable the businesses to engage more meaningfully with their stakeholders. These companies will have to share quantifiable yardsticks, allowing investors to compare them across companies, sectors, and time periods before investing.

Creating an Environmental, Social and Governance report

ESG reporting raises the transparency of the corporation’s mission and its inclination towards environmental and social metrics. Following are the factors included in ESG reporting

• Environmental criteria will consider if a company’s performance and practices are sustainable and help protect the environment. This criterion uses yardsticks like the resources and energy used by the company, compliance to pollution norms, adopting efficient practices for water, energy-saving, effective waste management practices, etc.

• Social criteriaexamine how a corporation manages its relationships with employees, suppliers, customers, and the communities in which it operates. Factors like customer satisfaction, community relation, gender and diversity, labour standards, and human rights are considered under these criteria.

• Governancecriteria include the system of practices incorporated into the company's functioning. It includes factors like the board's composition, the audit committee's structure, internal controls, rights of shareholders, the whistle-blower scheme, political contribution, etc.

Audience for the Environmental, Social and Governance (ESG) Report

ESG reporting by a company has shown to invite positive feedback from the following stakeholders in their interactions with the company.

• Investors
• Customers
• Suppliers
• Employees
• Regulators
• NGOs Media
• Competitors
• Academia

Documents Needed for ESG Report Preparation 

To prepare an all-inclusive Environmental, Social and Governance (ESG) Report, the business will need the following documents and reports.

• Documents on the potential risks to the environment on the ESG front and measures to handle them.
• Document on to ESG related projects or initiatives being afforded by the company
• Documents on the company’s governance indicating oversight mechanism on ESG strategy, policies and information
• Documents 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.  

Effects of transition from BRR to BRSR format

• The General Disclosures section has been expanded, and additional disclosures like on proximity of a company's operations to sensitive zones such as protected areas, water-stressed zones, etc., have been included in the new format.
• Section B of Management and Process in the new format will need information on policies and processes relating to the NGRBC Principles concerning leadership, governance, and stakeholder engagement.
• The section on Principle-wise performance will indicate how a company is performing in respect of each Principle and Core element of the NGRBCs. Companies can identify their key stakeholders and provide them with interaction type and frequency.
• A differentiated disclosure requirement for companies will be introduced. Companies transitioning to BRSR or planning to develop BRSR with no prior experience may consider BRSR lite to understand the requirements.

How ESG reporting is beneficial to Indian companies

Environmental, Social and Governance (ESG) disclosures are being compared by stakeholders searching for the company’s commitments to ESG through public disclosure of sustainability reports, annual reports, or common rating publications. This practice can be beneficial for new as well as existing companies operating in India because of the following.

• Global studies have shown that companies that embed ESG into core business practices outperform their peers. It is also valid for India, where, over 12 years, the MSCI India ESG leaders index continuously outperformed the broader market as represented by the MSCI India IMI index.

• In light of challenges India faces related to climate change, environmental risks, growing inequality, etc., businesses here realise that a positive impression on society and the consumers can be made if they incorporate ESG goals into their business goals. Ultimately, this will lead to a restructuring of the role of businesses in a society where their workforce and consumers won’t be treated as mere economic units for generating profit.

• Environmental, Social and Governance (ESG) reporting will indirectly lead to increased access to capital for Indian Businesses through investment, as investors are the largest consumers of this data. Several Asset Management Companies (AMC) have ESG funds, which use ESG performance reports of a company to make investment decisions.
• Obtaining a “social license to operate” in civil society can benefit democracies like India when communities have become increasingly aware and empowered. Companies, irrespective of their size, have realised that sustainability reporting will enable them to market their plans and activities and gain this social currency to operate in the community.

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