India’s SEBI and the New ESG Metrics

In July 2023, The Securities and Exchange Board of India (SEBI) added new environmental, social and government (ESG) metrics for mandatory disclosure under ‘BRSR Core’ for the top 1000 listed companies in India.

The Business Responsibility and Sustainability Report (BRSR) format was initially introduced in May 2021 and replaced the previous Business Responsibility Report (BRR). The shift to BRSR was driven by several factors, such as the growing demand from investors, customers and stakeholders for standardized sustainability reporting within a regulatory framework aligned with international standards. In addition, policymakers came to the conclusion that the former BRR frameworks were voluntary, doing little to force and incentivize companies to become more sustainable and causing a lack of reporting consistency and data comparability between businesses.

By making it mandatory for companies to disclose their sustainability practices, the BRSR is set to boost and enhance investor confidence, build trust among stakeholders, and align Indian companies with international ESG reporting norms.

WHAT ARE THE NINE PRINCIPLES OF THE BRSR?

The BRSR was developed based on nine principles, each of which has two components: essential and leadership indicators. Essential indicators are mandatory and based on environmental and social factors. Leadership indicators are voluntary and aimed at companies that “aspire to progress to a higher level in their quest to be socially, environmentally and ethically responsible,” as stated in the regulation.

THE NINE PRINCIPLES OF THE BRSR ARE:

Businesses should conduct and govern themselves with integrity and in a manner that is ethical, transparent and accountable.
Businesses should provide goods and services in a manner that is sustainable and safe.
Businesses should respect and promote the well-being of all employees, including those in their value chains.
Businesses should respect the interests of and be responsive to all their stakeholders.
Businesses should respect and promote human rights.
Businesses should respect and make efforts to protect and restore the environment.
Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.
Businesses should promote inclusive growth and equitable development.
Businesses should engage with and provide value to their consumers in a responsible manner.

WHAT ARE THE NEW ESG METRICS UNDER THE BRSR CORE?

But concretely, how will these principles apply in a company’s ESG reporting? In their annual reports, a listed company will be required to provide ESG-related information pertaining to its value chain, including data from both upstream and down partners, representing 75% of its sales/purchases by value, respectively.

HERE IS AN OVERVIEW OF THE SEBI’S DISCLOSURE GUIDANCE:

General disclosures of companies’ products and services, which should represent 90% of total business turnover), reporting boundary, employee counts and representation, and complaints and grievances that have been filed against them.
Environmental impact: Companies must offer up-to-date information on greenhouse gas, water and energy footprints and detail how they are embracing circularity, more effective waste management and practices that protect biodiversity.
Social impact: Businesses must provide transparency regarding their employee welfare, efforts to ensure health and safety, measures taken to promote diversity and inclusion, initiatives to support community development, fairness in engaging with customers and suppliers, and openness of business.
Governance practices. Organizations must reveal their board structure, executive compensation, shareholder rights, initiatives to prevent conflicts of interest, etc., as stipulated in the National Guidelines on Responsible Business Conduct (NGRBC).

Note that the BRSR core also focuses on India’s particular context as an emerging economy. Additional KPIs have been factored in, such as job creation in small towns, business openness, and gross wages paid to women. To facilitate better global comparability, intensity ratios based on the revenue adjusted for purchasing power parity (PPP) have also been incorporated.

WHAT ARE THE TIMELINES FOR BRSR COMPLIANCE?

The SEBI has stipulated a timeline for mandatory compliance under the BRSR Core; as of 2026-2027, all of the top 1000 listed companies by market cap in India must file their BRSR Report with their annual reports. The breakdown beforehand is as follows:

2023-2024: Top 150 listed companies
2024-2025: Top 250 listed companies
2026-2027: Top 500 listed companies

Indian-listed companies will have to provide their reports to official ESG rating service providers (ERPs). Only companies certified by the SEBI can become ERPs. Once the ratings have been analyzed and completed, ERPs are obligated to submit their audits and reports to the SEBI.

THE IMPACTS OF THE BRSR ON INDIA

According to the World Economic Forum, with over 1.4 billion people, the largest youth generation in history, and the fastest-growing major economy, India’s impact on global climate change can be huge.

The BRSR Core is part of a comprehensive strategy for India to achieve net zero by 2070 and achieve 50% of its electricity requirements from renewable energy sources by 2030. And while this will be key for India’s contribution to fighting climate change, it will also contribute to mobilizing public and private capital to finance its sustainable development projects through green fintech.

The reason? The country has abundant natural resources, which can be leveraged for renewable energy production, including solar, wind and hydropower energy, creating a green economy.

For example, India ranks third in the world in the Renewable Energy Country Attractive Index, thanks to the country’s investment and deployment opportunities in renewable energy. It is even planning to export solar power as output is set to exceed domestic demand.

Just recently, during the G20 Summit, India helped to broker a deal whereby developed member nations pledged US 100 billion for climate finance to support developing nations in their migration toward their net-zero targets.

In conclusion, the BRSR Core is a landmark initiative by SEBI that signifies India’s commitment to driving responsible and sustainable business practices. It will have a far-reaching positive impact, not only on India’s economy but also on the global fight against climate change. India’s transition to becoming a green powerhouse will inevitably incite other nations to follow.

ARE YOU A TOP 1000-LISTED COMPANY IN INDIA AND NEED SUPPORT IN PREPARING FOR THE SEBI’S BRSR CORE REGULATIONS? CONTACT OPTEL TODAY TO DISCUSS YOUR CHALLENGES WITH AN EXPERT.

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India’s SEBI and the New ESG Metrics