Enhancing Business Responsibility of India Inc. Through ESG Disclosures

The global community is negotiating ways to manage climate change and mitigate its impact while ensuring that there is no adverse effect on employment, food security or the living standards of the masses. Addressing climate change is one of the most urgent tasks, particularly for a developing India, which is already bearing the harsh consequences like water shortages, extreme weather events such as floods, coastal erosion, droughts, rising temperatures, anarchical expansion of unregulated industrial growth and other climate affecting events.

On top of it, what is rarely spoken about is another silent killer – fast expansion of concretization, which by itself is a by-product of uncontrolled urbanisation due to the lackadaisical approach of civic agencies. India is decades away from its peak in terms of economic growth and energy consumption, but India’s energy demand is estimated to grow faster than any other country over the next few years. India, a developing country of more than 1.3 billion people, is the world’s third-largest emitter of carbon dioxide after the US and China.

In this background, speaking at the 26th United Nations Climate Change Conference, more commonly referred to as COP26, held in Glasgow in October – November 2021, our hon’ble Prime Minister, Sri. Narendra Modi made five key pledges for how India would decarbonise over the next few decades. He had pledged that India would reach net zero-emissions by 2070.  


Broadly, ESG stands for Environmental, Social, and Governance and refers to the three key factors when measuring the sustainability and ethical impact of an investment in any business or industry. The term “environmental” includes carbon emissions, air and water pollution, deforestation, green energy initiatives, waste management, and water usage. The term “social” includes employee gender and diversity, customer satisfaction, corporate sexual harassment policies, human rights at home and abroad, fair labour practices, etc. The term “’governance” includes data protection, privacy, security, transparency, business ethics/values, anti-corruption and anti-bribery policies.

The Financial Times Lexicon defines ESG as “a generic term used in capital markets and used by investors to evaluate corporate behaviour and to determine the future financial performance of companies.” Broadly, the term ESG refers to the examination of a company’s environmental, social, and governance practices, their impacts on the company’s performance, ability to execute its business strategy, create long-term value, and the company’s progress against benchmarks.  

In response to this need, there has been a greater emphasis among investors and stakeholders on businesses that are responsible and sustainable in terms of the environment and society. As such, reporting on a company’s performance on sustainability-related factors has become as vital as reporting on its financial and operational performance. Modern business organisations are now being motivated by more than just profit-oriented strategies and revenue-generating objectives. Sustainability has become an integral aspect of corporate branding and shareholder expectations. ESG, used interchangeably with sustainability based on quantitative or semi-quantitative data, is about pursuing responsible and ethical business practices with attention to social and environmental equity along with economic development. The term “sustainability” is broadly used to indicate programs, initiatives and actions aimed at the preservation of a particular resource. However, it also refers to four distinct areas: human, social, economic and environmental – known as the “four pillars of sustainability”.

The policies adopted by Indian regulators over the past years also indicate that India has made an aggressive move towards decarbonisation to adopt sustainable ways of doing business. India is one of the first countries to demand ‘ethical’ commitments from corporations and industries. In 2013, Corporate Social Responsibility was mandated in India within the Companies Act of 2013, as was suggested in the National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business in 2011. The Companies Act, 2013 introduced one of the first ESG disclosure requirements for companies. Section 134(m) mandates companies to include a report by their Board of Directors on conservation of energy with their financial statements and is further detailed under Rule 8(3)(A) of the Companies (Accounts) Rules, 2014, which mandates the board to provide information regarding conservation of energy.


SEBI’s Role in Mandating ESG Disclosures


There may not yet be any single, comprehensive and stringent enactment governing the entire subject with all checks and balances, but SEBI (Securities and Exchange Board of India) has taken on the role of implementing an efficient ESG policy. As far back in November 2015, SEBI issued a circular prescribing the format for the Business Responsibility Report (BRR) with respect to reporting on ESG parameters by listed entities. The top 500 listed companies in India were instructed by SEBI to disclose indicators of business responsibility and sustainability through Business Responsibility Reporting (BRR). Companies were mandated to include disclosures on opportunities, threats, risks, and concerns as part of their annual reports under Regulation 34(3) of the SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 (LODR Regulations).

In 2017, SEBI issued a circular on ‘Disclosure Requirements for Issuance and Listing of Green Debt Securities’ (also known as Green Bonds) to introduce the regulatory framework for the issuance of green debt securities in India and enhance investor confidence. It supplements the SEBI (Issue and Listing of Debt Securities) Regulation, 2008 and envisages a list of disclosures that an issuer must make in its offer document before and after commencement of a project financed by green debt. These additional disclosure requirements have been prescribed to attract the finance reserved for ESG-compliant projects, such as renewable energy and sustainable energy, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable water management, sustainable land use and biodiversity conversion. 

To further strengthen the ESG disclosure regime in India, SEBI amended Regulation 34(2)(f) of the LODR Regulations and on May 10, 2021, SEBI issued another circular detailing new sustainability-related reporting requirements on ESG parameters called the Business Responsibility and Sustainability Report (BRSR) to replace the existing BRR and place India’s sustainability reporting on par with the global reporting standards. The BRSR is intended to have quantitative and standardized disclosures on ESG parameters. Such disclosures will be helpful for investors to make better investment decisions and also enable companies to engage more meaningfully with their stakeholders by encouraging them to look beyond financials and towards social and environmental impacts.

The filing of BRSR after the implementation of new norms has been stipulated as mandatory for the top 1000 listed companies (by market capitalization) for the financial year 2022-23 but voluntary for the financial year 2021-22, to provide the companies with sufficient time to get used to new reporting compliance/regulations. The BRSR seeks continuous disclosures from listed entities on their performance and is aligned with the nine principles of the ‘National Guidelines for Responsible Business Conduct’ (NGBRCs). Adoption of BRSR is yet to pick up pace because of the detailed nature of disclosures required in BRSR. To speed up the process, in a Press Release on May 6, 2022, SEBI constituted an advisory committee on ESG matters in the securities market to create faster momentum.

In respect of non-listed companies however, there is currently no law that mandates that such companies be subject to mandatory ESG disclosure or reporting requirements. However, it can be expected that once the scheme is fully implemented where it is comparatively easier to regulate, it will certainly cover other companies as well as industries in unorganised sectors.

ESG disclosures are highly significant and relevant for all prospective stakeholders involved in business for reasons briefly described as follows.

  • Investors – If a business is not conscious of sustainability, there are chances of it becoming redundant in the future due to legal and regulatory changes prohibiting certain ways of doing business or decreasing demand for business products or deteriorating services. This aspect would certainly motivate the investor’s focus while investing.
  • Businesses – ESG disclosures identify potential transition risks, assess future viability, and take the necessary steps to adapt to likely future changes. Companies that are not aware run the risk of losing profit-making capacity as well as market reputation.
  • Consumers – ESG disclosures also help conscious consumers identify responsible businesses that not only concentrate on profit maximisation but also growth in a responsible manner. Accordingly, the disclosures become part of a marketing strategy to attract more consumers.

ESG goals are a set of standards for a company’s operations that force companies to follow better governance, ethical practices, environment-friendly measures, and social responsibility. They are used by socially conscious investors to screen potential investments. Environmental criteria consider, for example, how a company performs as a steward of nature, safeguards the environment, including corporate policies addressing climate change. Companies with better ESG performance have a better track record on issues such as human rights, climate change, environmental sustainability, social responsibility, ethics, and transparency, and hence are more resilient against future risks. It has become absolutely essential for companies to have comprehensive ESG policies in place.

In conclusion, to quote our Hon’ble Prime Minister, “The decisions taken in Glasgow will safeguard the future of generations to come and give them a safe and prosperous life.”  

The policies adopted by Indian regulators over the past years also indicate that India has made an aggressive move towards decarbonisation to adopt sustainable ways of doing business. India is one of the first countries to demand ‘ethical’ commitments from corporations and industries.