ESG in India: A Growing Imperative for Sustainable Development
- Shubham Mishra
- Sep 5, 2024
- 6 min read
#ESG #Decarbonisation #BRSR #SEBI #GRI #SBTi #India #SustainableBusiness #CorporateResponsibility #SustainableInvesting #EnvironmentalSocialandGovernance #ESGinIndia #EthicalBusiness #EthicalInvesting
In recent years, Environmental, Social, and Governance (ESG) principles have become the cornerstone of business strategy, investor confidence, and regulatory frameworks worldwide. As global challenges such as climate change, social inequality, and corporate governance issues continue to intensify, businesses must evolve to meet these concerns. For India, ESG is no longer just a regulatory requirement but a driver of long-term business strategy, competitiveness, and social responsibility. In India, ESG has gained substantial traction, driven by government regulations, market demands, and investor preferences. But how has India, as a rapidly growing economy, shaped its approach to ESG? This blog explores India’s evolving journey towards ESG integration, focusing on the transition from Business Responsibility and Sustainability Report (BRSR) to the Business Responsibility and Impact Statement (BRIS), along with the outlining key milestones of the development of guidelines, laws, and rules supporting ESG. and discussing how ESG practices are shaping India's future.
The Genesis: From Business Responsibility Reports (BRR) to BRSR
India's journey in incorporating responsible business practices into corporate governance began with the Business Responsibility Report (BRR), introduced by the Securities and Exchange Board of India (SEBI) in 2012. Initially, BRR was applicable to the top 100 listed companies by market capitalization. Its primary focus was on corporate disclosure regarding the social, environmental, and governance aspects of business operations. However, as global awareness of ESG issues grew, India needed a more robust and comprehensive reporting system.
India’s ESG Regulatory Framework: A Brief Journey
India's journey from BRR to BRSR illustrates the increasing emphasis on sustainability and detailed corporate reporting. Here’s a comprehensive overview of each milestone:
Year | Milestone | Description |
2009 | Voluntary Guidelines on Corporate Social Responsibility (CSR) | The Ministry of Corporate Affairs (MCA) issued these guidelines to encourage companies to adopt CSR practices voluntarily. They laid the groundwork for integrating social and environmental responsibility into business strategies. |
2011 | National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibility | Building on the earlier CSR guidelines, the NVGs provided a more structured approach to integrating social, environmental, and economic responsibility into business practices. The guidelines were aimed at guiding companies in adopting sustainable practices across all operations. |
2012 | Introduction of BRR | The Securities and Exchange Board of India (SEBI) introduced BRR for the top 100 companies by market capitalization, requiring them to report on their business responsibility initiatives in line with NVGs. This was the first formal attempt to make sustainability reporting a part of corporate governance. |
2013 | Companies Act 2013 | The Companies Act introduced several provisions related to corporate governance, including mandatory CSR spending for companies meeting certain criteria. This act reinforced the need for companies to adopt sustainable and socially responsible practices. |
2014 | Mandatory CSR Provision under Section 135 of the Companies Act | This section mandated that companies with a net worth of ₹500 crore or more, a turnover of ₹1000 crore or more, or a net profit of ₹5 crore or more during any financial year, had to spend at least 2% of their average net profits on CSR activities. This law formalized the CSR practice and expanded its scope. |
2015 | Extension of BRR Reporting | SEBI extended the BRR reporting requirement to the top 500 companies by market capitalization, emphasizing the need for a broader adoption of responsible business practices across a larger segment of the corporate sector. |
2019 | Release of National Guidelines on Responsible Business Conduct (NGRBC) | The NGRBC, aligned with international standards, provided a more comprehensive framework for responsible business practices. SEBI mandated BRR reporting for the top 1000 listed companies, ensuring wider compliance with the updated guidelines. |
2020 | Proposal for BRSR | A committee proposed the transition from BRR to BRSR to enhance the focus on sustainability. BRSR was designed to integrate more detailed ESG disclosures and align with global sustainability standards, reflecting the growing importance of sustainability in corporate reporting. |
2021 | SEBI's BRSR Framework | SEBI introduced BRSR as a voluntary framework for the top 1000 listed companies for FY2022, with mandatory compliance from FY2023 onwards. BRSR includes more detailed reporting requirements and aligns with global ESG reporting frameworks like the Global Reporting Initiative (GRI) and Task Force on Climate-related Financial Disclosures (TCFD). |
The Shift to BRSR: Business Responsibility and Sustainability Reporting
Recognizing the need for a deeper focus on sustainability, SEBI introduced the Business Responsibility and Sustainability Report (BRSR) in 2021. BRSR marked a significant shift from the older BRR format by aligning corporate disclosures with ESG metrics and encouraging businesses to integrate sustainability at the core of their operations. This was also aimed at increasing transparency and accountability, which investors and stakeholders increasingly demanded. Here’s a detailed comparison:
Aspect | BRR | BRSR |
Objective | Focused on business responsibility, addressing basic CSR and governance aspects. | Aims to provide a holistic view of a company’s ESG performance, integrating sustainability into corporate reporting. |
Scope of Reporting | Covered basic CSR initiatives and compliance with NVGs. | Encompasses detailed ESG metrics, governance structures, risk management, and sustainability practices. |
Disclosure Requirements | Limited to qualitative disclosures on CSR activities. | Includes quantitative and qualitative disclosures on ESG performance, aligning with international standards. |
Framework Alignment | Based on NVGs and voluntary guidelines. | Aligned with global frameworks such as GRI, TCFD, and Sustainable Development Goals (SDGs). |
Implementation | Mandated for top 100 companies initially, extended to 500 companies and then 1000 companies. | Mandatory for the top 1000 listed companies from FY2023, reflecting a broader and more detailed approach. |
Starting with the top 1,000 listed companies, SEBI mandated BRSR on a voluntary basis in 2021-2022 and made it mandatory from 2022-2023 onwards. This shift signaled a significant regulatory push to enhance corporate India’s sustainability journey.
The Road to BRIS: Business Responsibility and Impact Statement
As ESG evolves, SEBI and the Ministry of Corporate Affairs (MCA) are contemplating a further refinement from BRSR to BRIS (Business Responsibility and Impact Statement). This would potentially represent the next phase, focusing not only on reporting and disclosing ESG metrics but also on measuring the tangible impact of corporate actions on society and the environment. BRIS could emerge as a more dynamic tool, ensuring that the data disclosed translates into meaningful and measurable outcomes, pushing companies toward deeper sustainability integration.
India's Progress on ESG Integration
India’s corporate ecosystem is seeing increasing ESG adoption for several reasons:
Investor Demand: Domestic and international investors are actively seeking out companies with strong ESG practices. Adopting robust ESG practices can make Indian companies more attractive to international investors who prioritize sustainable and responsible investment opportunities. This can lead to increased foreign direct investment (FDI) and improved access to global capital markets. ESG-linked investments, such as green bonds and sustainability-linked loans, are gaining popularity in India’s capital markets.
Regulatory Compliance and Global Competitiveness: Aligning with global ESG standards helps Indian companies comply with international regulations and enhance their competitiveness in global markets. It also prepares companies for potential future regulations that may mandate more stringent ESG disclosures.
Consumer Awareness: As Indian consumers become more sustainability-conscious, businesses are aligning their operations with ESG principles to cater to this demand.
Enhanced Corporate Accountability: ESG reporting frameworks like BRSR ensure companies are more transparent about their environmental and social impacts, fostering greater trust among stakeholders, including investors, consumers, and regulatory bodies.
Promotion of Sustainable Development: By integrating ESG principles, companies contribute to the achievement of Sustainable Development Goals (SDGs), addressing critical issues such as climate change, resource depletion, and social inequality.
Long-Term Business Viability: ESG practices help companies manage risks related to environmental and social factors, ensuring long-term business viability and resilience. Companies that proactively address ESG issues are better positioned to navigate future challenges and opportunities.
Looking Ahead: Challenges and Opportunities
India's transition towards a robust ESG ecosystem is not without challenges. The country faces:
Data Collection and Reporting Gaps: Many companies still struggle with gathering accurate and comparable ESG data.
Inconsistent Adoption: While large companies have embraced ESG reporting, smaller businesses, especially MSMEs, are lagging due to resource constraints and limited awareness.
Balancing Growth and Sustainability: For a developing country like India, balancing economic growth with sustainability targets presents ongoing challenges.
Despite these hurdles, the growing regulatory framework, investor interest, and societal demand for responsible business practices present immense opportunities. India is on the cusp of a significant transformation, where ESG will play a pivotal role in driving sustainable, inclusive, and responsible growth.
Conclusion: The Future of ESG in India
India’s evolving ESG landscape is indicative of the growing recognition that sustainability is no longer optional but essential for business resilience and long-term growth. The transition from BRR to BRSR, and eventually to BRIS, underscores the country’s commitment to enhancing corporate transparency, accountability, and sustainability.
As Indian businesses continue to integrate ESG into their strategies, the country's overall sustainable development trajectory looks promising. With robust regulatory frameworks, proactive corporate strategies, and growing awareness, India is poised to become a leader in the global ESG movement.
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