Addressing and managing the issue of climate change and environmental degradation has taken the place of priority among many agencies and authorities all around the world, with global communities coming together and brainstorming the methods of managing the issue of Climate Change. Recently conducted, the 2021 Conference of Parties (CoP26) addressed climate change in Glasgow, where it was ensured by the global communities while negotiating methods to control climate change that these methods will not be affecting the living standards, employment, or food security. At this conference, India also pledged that it would achieve the goal of net-zero emissions by 2070.
To accomplish this Indian Government legislature has implemented many policies to adopt a more sustainable way of business and promote a Circular Economy, one of them being Environment, Social, and Governance (ESG) Reporting, where companies are encouraged to look for alternative methods to the traditional finance-centric model.
Evolution of ESG Reporting
ESG related regulations in India are specified under various legislation, including Environment laws (The Environment Protection Act, 1986, The Water (Prevention and Control of Pollution) Act, 1974, The Air (Prevention and Control of Pollution) Act, 1981, and Hazardous Waste (Management Handling and Transboundary Movement) Rules, 2016) as well as Factories Act, 1948.
The First stipulation regarding Environment, Social, and Governance (ESG) Reporting was introduced in The Companies Act, 2013. According to section 134(3), Companies are required to include the report compiled by their Board of directors regarding the conservation of energy accompanying the annual financial statement, which is further described in Rule 8(3) (A) of the Companies (Accounts) Rules, 2014.
Along with this, Regulation 34(3) of SEBI (Listing Obligation and Disclosure Requirements) Regulation 2015 (LODR Regulations) also provides for companies to include disclosure of opportunities, risks, concerns, and threats as a part of their annual report, which was further amended under Regulation 34(2)(f) which introduce the BRSR framework in 2021.
This new guideline replaces the previous BRR (Business Responsibility Report), making it mandatory for the top 1000 listed companies to annually report ESG related information from the financial year 2022-2023.
Further, the Indian Banks Association (IBA) has also published guidelines for responsible financing regarding the integration of ESG risk management into the financial institution’s decision-making process, business strategy, and operations.
Principles to be fulfilled under the ESG report
The policies that are required by businesses to be fulfilled as per the report issued by The Ministry of Corporate Affairs of the Government of India are: –
- Practice sustainable and safe way of providing goods and services
- Keep in mind the interest and requirements of the stakeholders.
- Promote and Practice human Rights
- Practice and encourage the health of all the employees, counting the supply chain workers
- Working and promoting the ethical, transparent, and accountable way of conduct.
- Promote and Practice that encourage environmental protection.
- Promote development that is all inclusive and equal
- Maintain professional conduct with the consumers and client
- Adopting transparent and responsible ways in the case of participating in public awareness and regulatory policies.
- Disclosure of policies and mechanisms that a company implements that are compliant with ESG. BRSR (Business Reporting and sustainability reporting) lays significant weight on computable metrics for ensuring evaluation across sectors, companies, and time periods;
- Improved disclosures on climate and social related issues;
- Separation of disclosures into vital and principal indicators, the first one being the obligatory requirement. The leadership indicators, inter alia, also highlights disclosures related to the value chain of appropriate entities;
- BRSR(Business Reporting and sustainability reporting) allows interplay for organisations that are already issuing sustainability reports under other international frameworks
Importance of CSR Reporting
- Better Market standing
As per the recent reports, companies that adopt the practice of ESG Reporting as their vision and core value have been more lucrative than their competitors.
- Better Market share
A number of corporations have started to realise that making investments in social and environmental concerns would not only enhance their own business continuity but will also provide them with an advantage over competitors and clients, as well as open up new markets.
- Attracting Investor funding
Nowadays, Investors are getting more aware of the market overview of the companies with sustainable planning and ESG and their impact on the consumer, because of which they are more inclined to invest in companies that include this policy.
- Social license to operate
Because of increasing awareness among consumers and communities, the pressure on the companies to fulfil their responsibilities under ESG Report.
- Attracting Better Employment
Employers with a purpose and responsible behaviour are more and more popular among employees to attract a better workforce.
The guidelines provided by RBC have been influenced by many international conventions and laws, including UN Guiding Principles on Business and Human Rights, UN Sustainable Development Goals, Paris Agreement, and International Labour Organisation (ILO) Core Conventions which put emphasis on the issues of sustainable development of business like transparency, human rights, environmental protection, business ethics, and fair labour practices.
ESG Reporting after the implementation of new norms has been stipulated mandatory for the financial year 2022-23 but was voluntary for the financial year 2021-22 so that businesses get sufficient to get used to new reporting regulations. These companies are required to adopt BRSR as soon as possible to help them showcase their sustainability position, objective, or performance, which ultimately results in improved market standing and better funding.
ESG reporting is critical for a rising economy like India because it gives all stakeholders the chance to create a system of economic measurement that goes beyond traditional financial measurements. By mandating ESG reporting by Indian corporations, SEBI is making efforts to support the fulfilment of the Paris Climate Change Convention and the Sustainable Development Goals of the United Nations. One anticipates that all listed corporations and sizable unlisted enterprises will be subject to the BRSR reporting requirements.