India should align ESG disclosures with global reporting standards

India needs to align its ESG reporting norms with globally accepted standards to attract investments

Five years ago, in 2021, when the market regulator made business responsibility and sustainability reporting (BRSR) disclosures compulsory for listed companies in India from 2022-23 onwards, it was seen as a major step towards mandating non-financial disclosures by corporations. India was among the pioneers in doing so. Even the European Union made such disclosures compulsory only in 2024-25. 

This was further strengthened by the introduction of BRSR Core in 2023, which prescribed third-party assessment of key performance indicators (KPIs), further strengthening the credibility of the scheme. 

Environmental, social and governance (ESG)-related issues are gaining increasing importance globally. The BRSR guidelines need to be constantly reviewed in line with global developments, thereby maintaining their relevance for stakeholders. This column examines this issue and makes some suggestions for the consideration of the government and the regulator. 

The BRSR guidelines mandate listed companies to disclose information under nine categories covering various aspects under ESG. As of now, the reporting templates are sector-agnostic. They need to graduate to sector-specific templates. Surely, the templates for a thermal power plant can’t be similar to that of an IT industry. While the existing guidelines allow companies to report “not applicable” under columns that are not relevant to them, the disclosures can result in either information overload or a deficiency of relevant, sector-specific information. The regulator could use the National Industrial Classification to categorise different sectors while prescribing sector-specific templates. 

The disclosure regime helps stakeholders to compare companies operating in the same sector. It would be more useful if disclosures under various parameters could also be compared with benchmarks, prescribed by the government/regulators for different activities. In the absence of benchmarking, it is not possible to judge the absolute performance of a company. 

The government has various international commitments and domestic aspirations under different elements of ESG. It needs to figure out the contributions it expects from corporations towards meeting those commitments and aspirations. 

For instance, under the environmental component of ESG, the government has committed to reducing the emission intensity of gross domestic product by 45 per cent by 2030 from 2005 levels and achieving net-zero greenhouse gas (GHG) emissions by 2070. 

Naturally, these milestones cannot be achieved unless the targets are disaggregated across different activities and sectors, and progress is monitored. What does the government expect from corporations? Some sectoral GHG emission targets have recently been fixed for hard-to-abate sectors under the Carbon Credit Trading Scheme (CCTS). Companies in the covered sectors should be asked to clearly disclose their performance vis-à-vis those targets. 

In fact, such targets should be fixed and performance monitored for more sectors. Going forward, specific targets should also be fixed for other parameters, such as water-use intensity and the proportion of renewables in total energy consumption. 

Similarly, under the social component, quantitative and qualitative targets could be fixed for DEI (diversity, equity and inclusiveness), safety and labour code implementation. Under governance, in regulated sectors, regulators could prescribe linking executives’ variable remuneration to ESG-related KPIs. Stakeholders could then assess the performance of the concerned companies against such benchmarks. 

The BRSR coverage needs to go beyond the top 1,000 listed firms. While categorisation based on market capitalisation is an easy criterion to prescribe, it may not achieve the desired purpose. For instance, some of the most GHG-emitting industries could be outside the cohort of the top 1,000 listed companies. Also, many large companies whose ESG disclosures would be highly relevant prefer to remain unlisted. 

Thus, the criteria need to be relooked, and the coverage expanded. Right now, the companies’ boards don’t have an exclusive committee to deal with ESG-related matters; the subject is typically handled by either the CSR committee or risk management committee. A separate board committee for ESG in materially significant companies needs to be prescribed by the regulator. 

The inclusion of micro, small and medium enterprises under BRSR, including those that are value-chain partners of the covered entities, would need to follow a more gradual approach. They would need capacity building and hand-holding. To begin with, they could be covered under a lighter version of the regulations, say, BRSR-Lite. 

While there are no universally accepted standards for ESG disclosures, for the reasons explained below, we need to gradually align our BRSR regime with international standards accepted in developed countries. 

There is a general consensus among consultancy organisations, industry groups and researchers that in the foreseeable future we would need a substantial proportion of foreign funding to timely meet our sustainable growth goals. Many foreign pension funds, sovereign wealth funds, and other long-term investing funds have mandates from their investors to invest a proportion of these funds only in sustainable development projects. For them to invest in India, they would expect Indian companies to follow those standards that are applicable in their own jurisdictions. 

Over the past few years, the sustainability reporting standards developed by the International Sustainability Standards Board, a body under the international financial reporting standards, have been largely accepted globally, and more and more jurisdictions have moved/are moving towards adopting them. We should, in consultation with all stakeholders, set a roadmap to align BRSR with these standards. If, based on our local conditions, we need to carve out some exceptions under certain parameters, we should have valid and convincing arguments to satisfy international investors. 

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The writer, a distinguished fellow at the Observer Research Foundation, is a former chairman of Sebi