As the landscape of corporate India is shifting towards sustainability, the relevance of Environmental, Social, and Governance (ESG) regulations is growing rapidly. ESG regulations are different standards the government prescribes for actions relating to the same. The purpose of these regulations is to motivate companies to adopt sustainable measures and practices that will ultimately result in a sustainable and ethical impact and will also protect their investors from greenwashing. These regulations mainly deal with environmental and climate risks revolving around companies.
Environmental in ESG deals with different aspects of the environment such as carbon footprints, water pollution, deforestation, etc. The social factor in ESG requires a company to deal with elements such as labour practices, management of stakeholders and its employees, etc. Lastly, Governance includes the leadership and decision-making ability of a company and its transparency in managing the same.
In India ESG's are not regulated by a single piece of law or statute, however, they come under various legislations such as the Companies Act 2013, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) and many more.
- Companies Act covers companies with certain turnover or net worth to form a committee to oversee various activities and policies of the company related to Corporate Social Responsibility (CSR).
- Additionally, Section 149 of the Companies Act requires certain classes of companies to have a female director.
- In the year 2012, SEBI introduced the Business Responsibility Report (BRR), making the top 100 listed companies by market capitalization mandatory to file the same with a motive to assess the ESG factors. The same was replaced in 2021 with Business Responsibility and Sustainability Reporting (BRSR) expanding the earlier Business Responsibility Report. BRSR is a data-heavy framework aligned with 9 principles of the National guidelines for responsible business conduct and it also adopts the United Nations Sustainable Development Goals (UNSDG).
- SEBI in 2023 amended regulation 34 (2) of the LODR regulations and introduced a framework commonly referred to as 'BRSR Core' and 'BRSR Core for company's value chain'. As per the same, it mandated the top 1,000 listed entities by market capitalization to make disclosures related to their ESG policies and practices.
Recent Developments
ESG is in a very early stage in India, however, companies such as Tata Consultancy Services (TCS), Asian Paints, etc have introduced and adopted policies for the same. These include Havells reducing its use of radioactive isotopes, and Asian Paints decision to use eco-friendly material for production. TCS also has an Adult Literacy Program to promote education among adults in rural India. SEBI introduced listing regulations for companies mandating ethical governance practices.
Way Forward
As corporate India is on the rise, ESG regulations have a long way forward. The government considering the importance of these regulations could come up with various policies and mandates that could help in its development. Currently, the 2023 SEBI regulations apply only to a small fraction of companies out of the total registered companies in the country. The Ministry of Corporate Affairs (MCA) along with SEBI will play a crucial role in tapping the global trends and applying the same in India. It also helps the companies as the same results in value creation and attracting investments.
The author is a Campus Ambassador of LiveLaw @ USLLS, GGSIPU. Views are personal.