ESG reporting standard in India requires holistic approach to build global comparability

The environmental, social, and governance (ESG) aspect is steadily transitioning from a niche proposition to a critical business priority. According to a study released by asset management firm Capital Group in 2022, 89 percent of investors factor in ESG issues in some way or the other as a part of their investment strategy. Corporates in India are gradually realising that demonstrating commitment to sustainability, ethical practices, and governance is the way to build long-term engagement with investors, stakeholders and customers at a time when all these communities are becoming ESG conscious.

The ESG reporting framework in India is going through a process of evolution. From Business Responsibility Report (BRR) launched in 2012 to the rollout of the Business Responsibility and Sustainability Report (BRSR), Securities and Exchange Board of India (Sebi) is building the pathway for the listed companies to meet the global ESG requirements, enabling global comparability.

Another key development in this context is the conceptualisation of BRSR Core which makes the reporting standards relevant to the emerging markets. Key performance indicators (KPIs) such as employment generation in small towns, wages paid to women, etc. aim to enhance transparency and disclosure. BRSR core adopts a holistic approach factoring in 49 parameters for ESG reporting. This makes it one of the detailed assurance reporting, facilitating comparability across companies. All in all, a growing ESG consciousness makes ESG performance a decisive factor to define a company’s growth trajectory and capital-raising abilities.

Making ESG performance comparable

ESG performance is a thorough evaluation of an organisation’s environmental impact, employee engagement and governance framework. This assessment takes into account a diverse array of indicators such as labour policies, energy consumption, waste management, diversity and inclusion, board composition, executive compensation, among others to ESG to offer a comprehensive view on a company’s sustainability initiatives.

The importance of ESG performance is steadily growing on the back of pressing demand for heightened transparency and accountability from all stakeholders such as investors, consumers, employees and regulators. Secondly, investors in particular are increasingly integrating ESG factors into their investment strategies, as ESG performance and financial outcomes are essentially co-related. Consumers are also opting for brands which show unwavering commitment to sustainability and social responsibility.

Therefore, regulatory authorities across the globe are enacting frameworks and directives to incentivize companies for adopting sustainable initiatives. The Green Credit Program proposed by Sebi is a case in point under which corporates can earn green credits by initiating tree-plantation drives on degraded land parcels recognized by the Forest Department.

Measuring ESG performance requires a multi-layered approach, as measurement parameters vary across industries. Assessing both quantitative and qualitative indicators is essential for a comprehensive assessment. Corporates in India usually deploy industry-specific frameworks such as Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) which use relevant metrics ranging from employee compensation to greenhouse gas emissions.

Lack of uniformity – ESG measurement challenge

ESG measurement is often inconsistent, as there are multiple ESG rating agencies, sustainability reporting standards and data providers and all deploy their own methodologies and parameters. That makes it challenging for the investors and other stakeholders to evaluate critical ESG metrics and make well-informed choices.

Authenticity of ESG data is another cause of concern given the fact that ESG initiatives undertaken by a large number of corporates in the country are self-reported. ESG data are backward looking to some extent, highlighting past performances, whereas the data should contain forward-looking elements capturing the potential risks and opportunities.

Brining standardisation

Measuring ESG performance with precision taking into account environmental, social, and governance metrics is crucial for corporates to meet stakeholder expectations. Clarity in sustainability disclosure narrative has been a long-standing demand. SEBI’s BRSR framework and its certification to ESG rating providers are positive developments which build the foundation for an effective and standardised ESG performance measurement structure.

BRSR assurance is far more than a procedural checkbox for corporations. It marks a significant stride towards a sustainable future, with meticulous BRSR implementation directly influencing the effectiveness of the assurance process. Companies frequently grapple with challenges like data accuracy and the constantly evolving landscape of sustainability standards, making reporting and assurance intricate. Partnering with specialized technology service providers can be a strategic solution, ensuring precise data collection, robust data verification, and seamless interoperability, effectively minimizing redundancies across various sustainability reporting frameworks.

Conclusion

The KPIs in BRSR and BRSR core take a more in-depth view of the reporting process compared to global reporting standards. The Sebi has in fact proposed measures to relax the requirements for the listed firms on ESG disclosure in relation to upstream and downstream value chain partners. Time has come for all players to work together to elevate the ESG performance standards in India and boost global comparability.

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