India’s ESG Regulatory Reporting Requirements

The Companies Act, 2013 introduced one of the first ESG disclosure requirements for companies. Section 134(m) mandates companies to include a report by their Board of Directors on conservation of energy, along with annual financial statement. This requirement is further detailed under Rule 8(3)(A) of the Companies (Accounts) Rules, 2014, which mandates the board to provide information regarding conservation of energy.

In addition to this, companies are mandated to include disclosures on opportunities, threats, risks and concerns as part of their annual reports under Regulation 34(3) of the SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 (“LODR Regulations”).

SEBI issued a circular on ‘Disclosure Requirements for Issuance and Listing of Green Debt Securities’, to introduce the regulatory framework for issuance of green debt securities in India and enhance investor confidence. It supplements the SEBI (Issue and Listing of Debt Securities) Regulation, 2008 and envisages a list of disclosures that an issuer must make in its offer document before and after the commencement of a project financed by green debt. These additional disclosure requirements have been prescribed in order to attract the finance reserved for ESG-compliant projects, such as renewable and sustainable energy, clean transportation, sustainable water management, climate change adaption, energy efficiency, sustainable waste management, sustainable land use, and biodiversity conservation.

In addition to this SEBI circular, the Indian Banks’ Association (IBA) has also released the National Voluntary Guidelines for Responsible Financing, laying down broad and general principles towards ‘integrating ESG risk management into Financial Institution’s (FIs) business strategy, decision-making process and operations.’ For instance, Principle 2 provides that FIs ‘should integrate the analysis of environmental, social and governance factors in their investment, lending and risk-management processes across business lines to minimize adverse impact on their own operations and on society. However, these Guidelines do not envisage any framework for credible and transparent issuance of green debt instruments.

Introduction of the BRSR framework

To further strengthen the ESG disclosure regime in India, SEBI amended Regulation 34(2)(f) of the LODR Regulations to introduce the BRSR framework in May 2021. This will replace the existing Business Responsibility Report (“BRR”). BRSR is aligned with nine principles of National Guidelines for Responsible Business Conduct (“NGBRC”) and it will be mandatory for the top 1,000 listed companies to annually disclose ESG-related information from financial year 2022-23.

India is gradually moving towards developing regulations around ESG. With the introduction of the BRSR framework, SEBI has joined the group of countries and international organization to have released comprehensive sustainability reporting frameworks. Though the reporting mandate is presently restricted to the top 1,000 listed companies by market capitalization, the experience with BRR only indicates that a wider range of companies would soon be covered under the BRSR framework.

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