 "India Inc prepares for a tough road to evolving standards, ESG compliance")
India Inc faces an uphill task adhering to the evolving standards around ESG compliances.
Though the new framework on environmental, social and governance (ESG) disclosures will be first applicable to the top 150 listed companies, its impact trickles down to the upstream value chain involving thousands of smaller players, ancillary companies, and third parties, according to industry players.
The Securities and Exchange Board of India (Sebi) recently approved the more comprehensive but assurance-oriented Business Responsibility and Sustainability Reporting (BRSR) Core model, which comes into effect from the next financial year.
The new parameters for environment-related disclosures will require assurance on greenhouse gas emissions, water wastage, consumption and treatment, and waste management, among others. A new detailed format will require collecting ESG-related information at each sale and purchase order level, especially for manufacturing companies.
Within a month of the market regulator’s approval of the new framework, top listed companies have started their reviews on the new parameters and data collating practices with all partners and suppliers.
According to experts, many companies are grappling with the evolving changes on the ESG front.
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“Many global suppliers will follow the Corporate Sustainability Reporting Directive (CSRD), which is based on limited assurances. On the other hand, BRSR Core is based on reasonable assurances. This difference will lead to an overwhelming task of collating data for suppliers to the Indian manufacturers and OEMs,” said Inderjeet Singh, partner, Deloitte India.
Additionally, companies may begin the practice of giving such non-financial disclosures after each quarter instead of the year-end.
Sebi already mandated the previous framework of BRSR for the top 1,000 listed companies. The new avatar BRSR Core will be gradually extended to the top 1,000 listed entities by FY27. As the new model focuses on India-specific parameters and targets, industry experts feel, companies may extend two different ESG ratings catering to different requirements of the investors.
“As the Sebi regulations for BRSR Core do not put an embargo on companies being ranked on global standards, there is a possibility that companies may have two different ratings -- one based on Indian standards and the other for global investors. For this year, we don’t see any possibility of active ESG raters re-calibrating their questionnaires with respect to change in regulations in India,” said Singh.
Another significant change is being felt on the ‘social’ standards where assurances have been mandated regarding spending on measures towards the well-being of employees, safety-related incidents, working hours, and gross wages paid to women as a per cent of total wages, among others.
“BRSR Core is more business-oriented on an action plan basis to add value through the regulations. The new disclosures are now looking for more transparency on the gender diversity claims. Further, a new section has been introduced in disclosures specific to policies for employee training and welfare, safety and a more detailed data collating is being done on the number of permanent vs contract employees, differently abled employees etc,” said Nitin Jain, managing partner, Agama Law Associates.
While the risk of green-washing has been discussed and raised by the markets regulator, industry players have highlighted the instances of pink-washing wherein some female family members have been appointed on boards as signatories but are not involved in day-to-day operations.
On the other hand, to improve social standards, many companies are charting plans to help pay salaries of contract workers and manpower at the end of the month like other employees. As a practice, many companies used to do such payouts after the first week of the month. This may have to be advanced, potentially leading to a liquidity burden on companies.
“As this will lead to early payouts, companies may approach banks for additional liquidity and will simultaneously impress upon the contractors for timely payouts to the contracted staff,” said an industry player.
Green Blues
- BRSR Core to be effective for top 150 listed companies from FY24, glide path for top 1,000 companies till FY27
- New assurance driven norms to trickle down to the upstream value chain involving thousands of smaller players
- Top listed companies have started reviews on the new ESG parameters and data collating practices
- Gap on standards for assurance may lead to two different ESG ratings of companies targeting global investors
- Employee well-being, gross wages paid to women, working hours among the social parameters