In a report released on March 29, 2023, the Securities and Exchange Board of India (SEBI) introduced several measures to safeguard the interests of investors and manage market disruptions effectively.

One such measure is the introduction of the Business Responsibility and Reliability Report (BRSR) to ensure the credibility of Environmental, Social, and Governance (ESG) disclosures. Initially, this regulation will apply to the top 150 listed companies from FY 2024 and will be extended to the top 1,000 listed companies by FY27.

SEBI has been persuading companies for over 10 years to adapt to and adopt ESG aspects as integral to corporate culture. To achieve this, SEBI voluntarily mandated BRSR for the top 1,000 listed companies from the financial year 2020-21 and mandatorily from 2022-23. SEBI made ESG reporting mandatory in 2012-13 for the top 100 listed companies by market capitalisation and then extended it to the top 500 from 2016-17 and then to the top 1,000 from 2022-23.

To enhance reliability and transparency, SEBI has introduced the BRSR Core, a limited set of key performance indicators (KPIs) to be disclosed with reasonable assurance by the top 1,000 listed companies, following a glide path by 2026-27. This also comes with mandating a regulatory framework for ESG Rating Providers (ERPs) to lend credibility, consistency and comparability to ESG ratings.

Despite the mandatory implementation of the BRSR from 2022-23, most corporations have yet to establish formal ESG compliance frameworks, particularly concerning environmental considerations. Currently, less than 40% of the top 500 listed companies provide any form of sustainability reporting, resulting in challenges for users of ESG disclosures, such as poor quality and lack of data, as well as ad hoc reporting on ESG parameters.

However, the proposed glide path for verified disclosures on specific KPIs, with reasonable assurance and rating for the top 1,000 listed companies, would instil urgency and discipline in ESG compliance. This is in line with the Companies Act 2013, which mandates that directors remain aware of and concerned about the impact of the company’s operations on climate change.

Boards need to steer companies into developing an ESG agenda, both for the short term and long term, and identify gaps between what they should know and what they actually know. Companies should ensure that a comprehensive and relevant ESG risk matrix is made part of the organisation’s risk framework. Trade and industry associations and rating agencies should come forward to develop industry-specific applicable standards to domestic conditions and tools and techniques for measuring data on all KPIs in a reliable manner.

From 2027-28 onwards, it is anticipated that the ESG framework will advance to a higher level of compliance by augmenting the number of KPIs, recommending industry-specific measurement methodologies and standards, providing guidance on rating methodology, and prescribing internationally accepted assurance standards to enhance the quality and credibility of ESG disclosures. In the ESG framework, greater importance will be placed on climate-related risks, oversight, and governance disclosures. As a result, companies, their boards, and management will be subject to more stringent oversight and scrutiny from regulators, investors, and ESG activists.