SEBI regulations increased the credibility of ESG disclosure
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Latest requirement for independent assurance & regulated rating will have been increased the credibility of ESG disclosure by SEBI
For more than a decade, the Govt & SEBI have been persuading companies to adapt to and connect with environmental, social, and governance (ESG) factors as indiscernible to corporate culture. To that purpose, Securities and Exchange Board of India mandated Business Responsibility and Sustainability Reporting (BRSR) for the top a thousand listed businesses on a voluntary basis beginning in Financial Year 2020-21 and mandatorily beginning in Financial Year 2022-23. The Companies Act 2013 needed energy conservation disclosure in the board of directors’ report.
Given the growing stage of development of best business reporting standards, practices & business preparation, Securities and Exchange Board of India took an adjustable strategy. It made environmental, social & Governance reporting compulsory for the Top Hundred listed companies by market capitalization in Financial Year 2012-13, then expanded it to Top Five hundred in Financial Year 2016-17 and Top one thousand in Financial Year 2022-23.
With the increased focus on Environmental, Social, and Governance (ESG) in general and climate change, in particular, being placed by Govts & Stakeholders around worldwide, SEBI has increased the standards for ESG necessities through several structural measures. In order to increase visibility and reliability the Top thousand publicly traded companies must disclose BRSR Core’s limited set of KPIs (key performance indicators) with reasonable assurance by Financial Year 2026–2027. The demands would also apply to these companies’ value chains. A regulatory framework for ESG Rating Providers (ERPs) has also been compulsory by Securities and Exchange Board of India in order to give Environmental, Social, & Governance ratings consistency, credibility & comparability.
While Securities and Exchange Board of India has taken a bold approach to implementing compliance rigidity via a glide path, most corporations have yet to institutionalize Environmental, Social, and Governance (ESG) compliance, particularly in relation to environmental aspects. So far, the trend has been mainly caused by global lenders’ and investors’ increasing emphasis on ESG when making investment decisions. While the BRSR shall be mandatory in Financial Year 2022-23, less than 40 per cent of the top Five Hundred listed companies currently report on sustainability. Users of Environmental, Social, and Governance (ESG) disclosures face problem because poor data quality, a lack of data, and ad hoc reporting on ESG parameters. In most cases, information on ESG in the supply chain, particularly in connection with climate change, is too broad to be useful. They find problem to get necessary data not even from secondary sources.
The fresh demands for verified reports on particular key performance indicators (KPIs) with reasonable assurance & rating, for Top one thousand listed companies, via a glide path, would instill urgency and discipline in Environmental, Social, and Governance (ESG) compliance. This is in accordance with the requirements of the Companies Act 2013, that need directors to be aware of and worried about the impact of the company’s operations on climate change. Any act of the board that is in the financial interests of the company but it is harmful to the environment might be opposite to the letter and spirit of the law and the directors might be held accountable jointly as well as personally. In fact, the standard of disclosures in the Top one hundred fifty listed companies has improved significantly as time passed.
SEBI have to take necessary action/ charge
Ideally, Environmental, Social, and Governance (ESG) will now take lead role in boardroom agenda and organization-wide governance. The sustainability of a company is impacted by ESG risks. Boards must direct companies towards creating Environmental, Social, and Governance (ESG) agendas for both the short and long term. They need to note any discrepancies between what they ought to know and what they actually do. The degree of knowledge should be evaluated in its overall context because it could have an impact on the business. Additionally, it needed to make sure that a thorough Environmental, Social, and Governance (ESG) risk matrix pertinent to the business is integrated into the organization’s overall risk system.
Until this occurs, Companies might be unable to compliance adherence to Environmental, Social, and Governance related compliance, particularly climate change and supply chain compliance until this occurs. Industry & Trade Associations, as well as rating agencies, should collaborate to develop industry-specific standards relevant to domestic Environmental conditions, as well as tools and techniques for accurately measuring data on all key performance indicators (KPIs) in a reliable way.
Area where it needs to rectify or Improvement
As previously stated, Securities and Exchange Board of India has taken a glide way. The Environmental, Social, and Governance framework is supposed to be graduated to the next stage of compliance adherence in Financial Year 2027-28 through increasing the number of key performance indicators (KPIs), prescribing industry-specific measurement methodology and standards, providing guidance on rating methodology, and prescribing worldwide accepted assurance standards to improve the quality and integrity of Environmental, Social, and Governance disclosures. Despite according to the new system of framework, rating agencies are not restricted from issuing other or extra ratings as requested by their clients, even though the core ESG Rating would be based on the particular parameters. Companies seeking global capital and market penetration might choose to demonstrate compliance with global standards & best practices.
The Regulatory requirements, together with market forces, shall make Environmental, Social, and Governance disclosures just as significant, if not more so, than accounting & financial disclosures. Oversight, governance and Climate-related risk disclosures would become increasingly important within the Environmental, Social, and Governance system framework. Companies, their boards, and their management will be subjected to raise scrutiny and oversight from regulators, investors, and ESG activists. Environmental, Social, and Governance claims that they’re already on the rise in India and around the world. It is high time for businesses to build capacity & competencies at all levels of management in order to respond sufficiently to emerging imperatives.
Post Written By : Associates – Tarun Kumar
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