ESG Reporting Mandates in India: Guidelines for Businesses

ESG (Environmental, Social, and Governance) is a framework for evaluating a company’s sustainability and ethical practices across three key areas: environmental impact, social responsibility, and corporate governance. As global environmental and social challenges escalate, investors and stakeholders increasingly expect businesses to adopt responsible practices, making ESG crucial for long-term success.

Indian businesses are increasingly aware of the reputational risks tied to poor ESG performance. As international rating agencies assess these risks, Indian companies are driven to improve their sustainability efforts, moving beyond mere compliance to align with global sustainability goals.

Sustainability reporting in India: Timeline of regulations

• 2009: The Ministry of Corporate Affairs (MCA) issues the “Voluntary Guidelines on Corporate Social Responsibility”.
• 2011: MCA issues the “National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business, 2011” and provides framework for reporting.
• 2012: The Securities and Exchange Board of India (SEBI) mandates the top 100 listed companies by market capitalization to file business responsibility report (BRR).
• 2016: The requirement for filing BRR is extended to the top 500 listed companies by market capitalization.
• 2017: A SEBI circular advises that integrated reporting may be adopted on a voluntary basis from FY2018 by the top 500 companies required to prepare BRR.
• March 2019: The updated NVGs is released as the “National Guidelines for Responsible Business Conduct.”
• December 2019: SEBI extends BRR requirements to the top 1000 listed companies by market capitalization from 2020.
• 2021: The Business Responsibility and Sustainability Reporting (BRSR) framework is introduced to the top 1000 companies by market capitalization to voluntarily. This becomes mandatory from FY2023.
• 2023: SEBI introduces BRSR core, which applies to the top 150 listed companies by market capitalization from FY2024.

Benefits of ESG

In 2020, the World Economic Forum and the International Business Council (IBC) urged major global corporations to adopt ESG standards for their 2021 reports, further highlighting the growing importance of ESG planning.

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While ESG reporting has seen considerable growth with heightened awareness from companies, investors, and regulators, it’s essential for organizations to make this reporting both meaningful and actionable for stakeholders.

Adopting ESG practices offers significant advantages, including improved financial performance, cost savings, competitive edge through brand loyalty and talent attraction, regulatory compliance, and enhanced long-term resilience. ESG also helps address pressing issues, such as climate vulnerability, social inequality, and governance concerns, making it a key factor in India’s future development and global leadership.

Why ESG is critical for India

For India, a rapidly developing nation with global leadership aspirations, embracing ESG is vital:

• Climate change: India is particularly vulnerable to climate change impacts, including rising sea levels and extreme weather events. Companies with strong environmental practices, like adopting renewable energy and reducing emissions, can help mitigate risks and contribute to a greener future.
• Social challenges: With its large and diverse population, India faces social challenges such as poverty, inequality, and lack of basic needs. Companies that prioritize social responsibility can drive positive societal change, creating a more inclusive economy.
• Governance: Strong corporate governance, including transparency and ethical conduct, is essential for economic growth. Companies with sound governance practices can rebuild trust, attract investments, and foster a stable, sustainable economy.

The growing emphasis on ESG principles is reshaping global investment trends. Companies with strong ESG performance are increasingly favored by investors, leading to higher market valuations and enhanced competitiveness. This shift is particularly relevant considering the European Union’s Carbon Border Adjustment Mechanism (CBAM), which imposes a 25 percent tax on energy-intensive goods exported from India to the EU, as highlighted by a report from the Centre for Science and Environment (CSE). The CBAM, targeting products like iron, steel, cement, fertilizers, and aluminum, is based on the carbon emissions generated during their production.

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The EU’s carbon tax aims to create a level playing field for European manufacturers who comply with stringent environmental standards. However, it has sparked concerns among developing nations about its potential to disrupt trade and impact their economies.

In the 2022-23 period, CBAM-covered goods accounted for 9.91 percent of India’s exports to the EU, with aluminum, iron and steel being the most affected sectors. To mitigate the impact of CBAM, Indian steel and metal companies are increasingly turning to renewable energy to lower their carbon footprint and avoid hefty penalties. However, the demand for renewable energy currently outstrips supply, with new capacities not expected to come online until 2026. As the EU remains a crucial market, Indian companies are investing heavily in renewable energy to align with the EU’s carbon tax requirements, despite the challenges posed by their existing carbon-intensive production processes.

Overcoming ESG challenges in India

Though India’s regulatory framework for ESG is still evolving, several initiatives are driving adoption:

• Government initiatives: The Indian government is actively promoting ESG through guidelines like SEBI’s BRSR guidelines, the India ESG Framework, and the promotion of green bonds for sustainable projects.
• Collaborative efforts:
  • Investors: Integrate ESG factors into decision-making and encourage businesses to adopt sustainable practices.
  • Companies: Embrace ESG principles, invest in sustainable technologies, and ensure transparency in ESG reporting.
  • Consumers: Support companies with strong ESG credentials by choosing sustainable products and services.

SEBI’s 2023 ESG reporting guidelines: The BRSR format

In July 2023, SEBI introduced a new ESG reporting format. These updated guidelines are built on the BRSR format, first introduced in May 2021, which replaced the older BRR reporting format.

While BRSR provides a comprehensive and detailed framework for companies to report on a wide range of ESG activities, offering a full picture of their sustainability efforts, BRSR Core narrows down this reporting to focus on the most critical ESG metrics, enhancing comparability and relevance for stakeholders, particularly investors.

The latter is a reporting framework for the top 1000 listed Indian companies (by market capitalization), requiring them to disclose their ESG performance in a standardized and quantitative format starting from FY 2022-23.

The shift to BRSR aims to meet growing demand from investors and stakeholders for standardized sustainability reporting that aligns with global practices.

While the BRR framework was voluntary, the BRSR framework is mandatory and is expected to boost investor confidence, enhance transparency, and bring Indian companies in line with international ESG norms.

Key elements of BRSR

The BRSR/ESG reporting framework is based on nine principles in line with the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business issued by the MCA.  

Each principle is supported by indicators, divided into two categories: essential and leadership. Reporting on the essential indicators is mandatory, while reporting on the leadership indicators is voluntary.

The MCA has introduced two formats for BRSR disclosures:

1. BRSR Comprehensive: This format is mandatory for obligated entities to report their ESG performance.
2. BRSR Lite: Designed for non-obligated entities without prior sustainability reporting experience, this format is a simplified version of BRSR Comprehensive, with fewer indicators across the nine National Guidelines on Responsible Business Conduct (NGBRC) principles.

Both formats consist of three main sections:

1. General disclosures: Basic company information, including products, services, operations, subsidiaries, and employee count.
2. Management and process disclosures: Details of business policies and processes aimed at aligning with the NGBRC principles.
3. Principle-wise performance disclosures: The company’s performance against the nine NGBRC principles.

New ESG metrics under BRSR Core

• The new ESG requirements in BRSR Core mandate companies to disclose detailed information on various aspects of their value chains, representing at least 75 percent of their sales and purchases.
• They must also provide data on environmental impact, including greenhouse gas emissions, water and energy usage, and waste management, as well as details about biodiversity protection efforts.
• Social aspects like employee welfare, diversity, community development, and fair engagement with customers and suppliers must also be addressed.
• Governance practices, including board structure, executive compensation, and conflict of interest management, are critical components of the report.

Compliance timelines for BRSR

SEBI has set specific timelines for compliance with BRSR Core, making it mandatory for the top 1,000 listed companies to file their BRSR reports with their annual reports by 2026-2027. Compliance will roll out gradually:

• 2023-2024: Top 150 listed companies by market capitalization
• 2024-2025: Top 250 listed companies by market capitalization
• 2026-2027: Top 500 listed companies by market capitalization

These companies will also need to submit their reports to SEBI-certified ESG rating service providers (ERPs) for evaluation.

Indian corporate sector’s growing interest in EGS adoption

Pressure from institutional investors and global ESG developments have significantly impacted Indian companies, pushing them to adopt ESG norms and practices. Adherence to global ESG frameworks like the Sustainable Development Goals (SDGs) and UN Principles for Responsible Investment (PRI) has become essential for attracting international investors. Indian enterprises recognize that strong ESG performance makes them more appealing to global capital markets, which is crucial for securing foreign investments.

According to 2024 survey report by Uniqus Consultech and IMA India, large Indian companies are making notable progress in sustainability, with 75 percent having defined sustainability goals and 84 percent voluntarily disclosing their targets. Fifty percent of large companies have successfully embedded ESG into their business strategies. However, this commitment significantly drops among small and medium-sized enterprises (SMEs), with only 29 percent of SMEs establishing clear sustainability goals.

The Uniqus Consultech-IMA India survey also identified the manufacturing and chemical sectors as leaders in sustainable practices. Despite the assumption that investors are the primary drivers of ESG efforts, only 30 percent of companies reported that investor pressure influenced their ESG initiatives. The survey gathered insights from over 150 companies across various sectors, highlighting the increasing focus on ESG in Indian corporations. Other report findings revealed that 61.3 percent of manufacturing companies expect measurable outcomes from their ESG initiatives in the medium to long term, with 13.3 percent anticipating results in the short term (0-1 years). Large companies reported full integration of ESG strategies into their operations, while SMEs still have room for improvement. Nearly half of the surveyed companies have established dedicated ESG teams, indicating the institutionalization of ESG practices.

With data playing a central role in transactions, ensuring compliance with industry and regulatory standards has never been more crucial for maintaining trust in capital markets. The evolving focus on ESG gives businesses the opportunity to strengthen their data protection and crisis management strategies. Failing to adopt responsible environmental practices could lead to reputational damage and financial penalties, while inadequate ESG performance can expose boards to allegations of greenwashing, hampering their appeal to investors.

The governance aspect of ESG is critical, particularly in a world rife with uncertainty. Companies that implement strong governance practices—such as independent board oversight, transparent decision-making, and effective risk management—are better positioned to build stakeholder trust and achieve long-term sustainability.

A 2023 EY study shows that 90 percent of global investors consider ESG performance a key indicator of long-term business resilience, reinforcing that ESG compliance is becoming a board-level priority. Organizations must integrate ESG into their core business strategies and ensure it aligns with their corporate governance and ethical standards.

Conclusion

As efforts to integrate ESG into corporate infrastructure in India continue, the emphasis on social and governance aspects is expected to grow, as businesses aim to build trust with stakeholders, including investors and partners. Regulatory trends indicate that the Indian government will increasingly require ESG reporting compliance. It would be strategic for companies to proactively adopt ESG reporting practices. This approach will better position them to engage with environmentally focused markets, such as the EU, and navigate global capital markets more effectively. Additionally, consumer-facing companies can enhance their reputational value as carbon footprints become a broader concern due to the impacts of climate change.

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