Environmental, social and governance (or "ESG") attributes are no longer a mere catchphrase. As more data emerges, suggesting a positive co-relation between investment decisions premised on ESG parameters and financial returns1 , regulators, investors and businesses are progressively aligning on the need to devise a robust regulatory framework detailing ESG-related norms and processes.

On May 6, 2022, the Securities and Exchange Board of India ("SEBI") constituted an ESG advisory committee ("EAC"), tasked with advising on a range of ESG-related matters. Basis the recommendations of the EAC, the SEBI has released the consultation paper on 'ESG Disclosures, Ratings and Investing' on February 20, 2023 ("Consultation Paper")2 , and has sought public comments on the regulatory framework for ESG disclosures, ESG ratings and ESG investing, on or prior to March 6, 2023.

The key proposals in the aforementioned Consultation Paper have been summarized below:


Through the SEBI circular issued on May 10, 2021, the 'Business Responsibility Report' ("BRR") was replaced by the 'Business Responsibility and Sustainability Report' ("BRSR")3 . Under the BRSR framework, listed companies were required to disclose their performance against each of the nine principles laid out in the National Guidelines on Responsible Business Conduct ("NGRBC") issued by the Ministry of Corporate Affairs in 2019. 4 The principles laid out in the NGRBC included conducting business in an ethical, sustainable, transparent, and accountable manner, promoting inclusive growth and being responsive to stakeholder interests. Under the BRSR framework, reporting under each principle was further sub-divided into 'essential' and 'leadership' indicators. Reporting of essential indicators, such as: (i) research and development investment in technologies to improve environmental and social impact; (ii) measures to improve the well-being of employees; and (iii) identification of key stakeholders, were mandatory. However, reporting of leadership indicators, such as: (i) awareness programmes conducted for value chain partners; (ii) conduct of life-cycle assessments; and (iii) process for consultation with key stakeholders, were voluntary.

With the top one thousand listed companies (by market capitalization) being mandatorily required to make ESG disclosures in accordance with the BRSR framework from the financial year 2022-23, the Consultation Paper has rightfully recognized that 'assurance' of any disclosures made by a company is imperative to enhance the credibility of any sustainability related reporting.

Drawing a distinction between 'limited assurance' and 'reasonable assurance', the Consultation Paper notes that while limited assurance may be easy to implement, reasonable assurance, although expensive, can inspire greater confidence amongst investors. However, the Consultation Paper does not offer a precise definition of the term 'assurance' and 'reasonable assurance'. Instead, it proposes the introduction of the 'BRSR Core', with select key performance indicators ("KPIs") for each environmental, social and governance attribute. Acknowledging that the BRSR framework is in itself at a nascent stage, the current BRSR framework is proposed to be revised to include the KPIs specified in the BRSR Core. Reasonable assurance on BRSR Core is proposed to be made mandatory for the top two hundred and fifty companies from the financial year 2023-24. Thereafter, the requirements will be extended to the top five hundred companies, from the financial year 2024-25, and the top one thousand companies from the financial year 2025-26.

Importantly, the proposed BRSR Core framework is premised on three key principles: (i) ensuring quantifiable and outcome-oriented metrics; (ii) inclusion of relevant attributes within the BRSR Core; and (iii) facilitating comparability across jurisdictions. In this regard, the BRSR Core has suggested the usage of metrics such as 'gross wages by gender', to ascertain the gender diversity practices implemented by companies and 'intensity ratios' (which may be adjusted based on purchasing power parity) to assess greenhouse gas emissions and water footprints, to aid comparability at a global level. Incorporating the aforementioned metrics can lend veracity to the disclosures made, thereby, minimizing the risk of 'green-washing'5 by companies.


The Consultation Paper has highlighted the need to implement ESG disclosures across the supply chain, given that significant ESG risks may exist at various levels of the company's supply chain. It has been suggested that doing so would provide a comprehensive outlook of the ESG risks associated with the company's operations. In view of the same, limited ESG disclosures (as per the BRSR Core) for the supply chain for the top two hundred and fifty companies (by market capitalization) are proposed to be implemented on a 'comply or explain' basis from the financial year 2024-25. However, assurance of the disclosures will not be mandatory for the financial year 2024-25. From the financial year 2025-26 onwards, it is suggested that assurance of disclosures will also need to be made on a 'comply or explain' basis for the supply chain for the top two hundred and fifty companies (by market capitalization).

The introduction of ESG disclosures at the supply-chain level is likely to present a wide range of challenges. Often, the company's supply chain partners are dispersed and unorganized, resulting in companies having to incur significant costs to ascertain, quantify and collate the relevant data. As a consequence, the credibility of the ESG disclosures run the risk of being diluted.

Download : Infolex_News_Alert_Demystifying_SEBIS_consulation_paper_on_ESG_disclosures_ratings_and_investing.pdf (induslaw.com)


1 https://www.oecd-ilibrary.org/sites/b854a453-en/index.html?itemId=/content/component/b854a453-en

2 https://www.sebi.gov.in/reports-and-statistics/reports/feb-2023/consultation-paper-on-esg-disclosures-ratings-andinvesting_68193.html

3 https://www.sebi.gov.in/legal/circulars/may-2021/business-responsibility-and-sustainability-reporting-by-listedentities_50096.html

4 https://pib.gov.in/Pressreleaseshare.aspx?PRID=1568750

5 Greenwashing refers to the practice of making misleading and exaggerated claims to deceive people about the environmental worthiness of a product or action

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