SEBI proposals clear the air on ESG investments

Last month , Securities and Exchange Board of India (SEBI) I totally got out The regulatory framework for ESG disclosures By India Inc, investors and rating agencies to facilitate a balanced approach to ESG.

“In order to enhance the reliability of ESG disclosures, a BRSR (Business Responsibility and Sustainability Report) should be submitted, which contains a limited set of Key Performance Indicators (KPIs), and for which listed entities must obtain reasonable assurance,” SEBI said. .

Quantifiable parameters

According to SEBI, the 150 largest listed companies will initially have to disclose and obtain basic BRSR standards from FY24 which will be gradually expanded to the 1000 largest listed entities by FY27.

The standards are quantifiable under nine broad themes – such as a change in a greenhouse gas footprint, a change in a water footprint, investing in reducing one’s environmental footprint, embracing circularity (details related to waste management by an entity), promoting employee well-being and safety, and enabling gender diversity in business, enabling comprehensive development, and fairness in dealing with customers and suppliers.

Under these topics, there are around 50 KPIs to facilitate comparability of disclosures. KPIs capture important metrics that reflect sustainable results in companies.

Also read: How have ESG mutual funds performed so far?

The core of BRSR contains factors relevant to the manufacturing and service sectors and more relevant especially in the Indian context, such as attributes such as Job creation and comprehensive development.

Besides, ESG disclosures and assurance (BRSR Core only) should be provided for the value chain of listed entities, with certain thresholds to be set, SEBI said. First of all, SEBI said these disclosure and assurance requirements should be applicable to the 250 largest listed entities (by market capitalization), on compliance or interpretation basis from FY25 and FY26, respectively.

desi thinking

Given that emerging markets have a different set of environmental and social challenges, ESG Rating Providers (ERPs) It shall be required that India/Emerging Markets criteria be taken into account in the ESG ratings.

“However, there will be no restriction on them issuing other/additional ratings as required by their clients,” the regulator added.

SEBI has also mandated ESG schemes to invest at least 65 percent of assets under management in listed entities, where BRSR Core is guaranteed. Fund managers’ comments and case studies should also be disclosed, highlighting among other things how the ESG strategy has been applied to the fund/investments.

These are all good initiatives by SEBI to improve credibility and address the risks of mis-selling and greenwashing, when ESG funds have been attracting significant inflows in recent times. Besides, this move will also help fund managers to look at the concept of ESG comprehensively, especially in the Indian context, and promote investment in ESG.

It is time for all stakeholders to follow the agenda with a clear vision, to make investing in ESG more understandable.