SEBI
SEBI stands for the Securities and Exchange Board of India. It is the regulatory body for the securities market in India. SEBI was established in 1988 as an autonomous body and was given statutory powers in 1992 through the SEBI Act. Its primary objective is to protect the interests of investors in securities and promote the development and regulation of the securities market in India.
SEBIs functions and responsibilities
SEBI has several functions and responsibilities, including:
Regulation and supervision of the securities market: SEBI regulates various participants in the securities market, such as stock exchanges, brokers, depositories, and other intermediaries. It formulates rules and regulations for their functioning and monitors their compliance.
Investor protection: It aims to protect the interests of investors by promoting fair practices, ensuring transparency in the securities market, and taking measures against fraudulent and unfair trade practices. It also educates investors about their rights and responsibilities.
Regulation of securities: Regulates the issuance and trading of securities, including stocks, bonds, and derivatives. It approves the prospectus of companies issuing securities, regulates public issues, and monitors insider trading and market manipulation.
Promoting market development: Works towards the development and growth of the securities market in India. It introduces reforms and policies to enhance market efficiency, liquidity, and transparency. SEBI also encourages the adoption of technological advancements in the securities industry.
Supervision and enforcement: SEBI has the authority to inspect the books and records of market participants to ensure compliance with regulations. It has powers to investigate and take enforcement actions against any violation of securities laws.
SEBI plays a crucial role in maintaining the integrity and stability of the securities market in India and safeguarding the interests of investors. Its regulatory framework aims to create a fair, transparent, and efficient market environment.
SEBI's ESG initiative for Indian business
SEBI has taken several initiatives to promote Environmental, Social, and Governance (ESG) practices among Indian businesses. ESG refers to the three key factors used to evaluate the sustainability and ethical impact of an investment in a company or business.
Here are some of the key initiatives taken by SEBI in relation to ESG:
Disclosure Requirements: SEBI has mandated the disclosure of ESG-related information by listed companies. In 2020, SEBI made it mandatory for the top 1,000 listed companies (based on market capitalization) to disclose their ESG-related initiatives, policies, and performance in their annual reports. This ensures transparency and allows investors to make informed decisions based on ESG criteria.
ESG Reporting Framework: SEBI has developed a reporting framework for ESG disclosures, known as the Business Responsibility and Sustainability Reporting (BRSR). The BRSR provides a structured format for companies to report their ESG performance. It covers various aspects such as environmental impact, social initiatives, corporate governance practices, and stakeholder engagement.
ESG Fund Classification: SEBI has introduced a separate category for ESG-focused mutual funds. This allows investors to specifically invest in funds that prioritize ESG considerations. The guidelines specify the criteria and methodology for mutual funds to be classified as ESG funds.
Stewardship Code: SEBI has introduced a Stewardship Code for Asset Management Companies (AMCs). The code promotes active engagement of AMCs with the companies they invest in and encourages them to exercise their voting rights in a responsible manner. It also emphasizes the integration of ESG factors into investment decisions.
ESG Scorecards and Indices: SEBI has encouraged the development of ESG scorecards and indices to assess and compare the ESG performance of companies. This enables investors to identify companies with strong ESG practices and incorporate them into their investment strategies.
These initiatives by SEBI are aimed at encouraging Indian businesses to adopt sustainable and responsible practices, enhance disclosure and transparency, and attract ESG-focused investments. They also contribute to the overall development and stability of the Indian capital markets.
National Voluntary Guidelines on the ESG (NVGs).
“National Guidelines on Responsible Business Conduct” released by the Ministry of Corporate Affairs (MCA) in India.
The National Guidelines on Responsible Business Conduct provide a framework for businesses to integrate responsible business practices into their operations. These guidelines aim to encourage businesses to go beyond mere compliance with laws and regulations and adopt a proactive approach towards sustainable and responsible practices.
Some key highlights of the National Guidelines on Responsible Business Conduct include:
Ethical Business Conduct: The guidelines emphasize the importance of ethical business conduct, integrity, and transparency in all business activities. It encourages businesses to establish and implement effective policies and practices to ensure ethical conduct at all levels.
Respect for Stakeholders: The guidelines advocate for businesses to recognize and respect the rights and interests of their stakeholders, including employees, customers, suppliers, and the local community. It emphasizes the need for fair and equitable treatment of all stakeholders.
Environment and Sustainability: The guidelines highlight the significance of environmental sustainability and encourage businesses to adopt measures for environmental protection, conservation of resources, and mitigation of adverse impacts on the environment.
Human Rights and Social Welfare: The guidelines emphasize respect for human rights, including labour rights, and encourage businesses to promote social welfare through initiatives such as inclusive employment practices, skill development, and community development activities.
Governance and Compliance: The guidelines stress the importance of good governance practices, including transparency, accountability, and effective risk management. It promotes compliance with relevant laws, regulations, and international standards.
The MCA encourages businesses to adopt these guidelines and integrate them into their business strategies and operations.
Supported Initiatives by UNDP
The UNDP plays a significant role in supporting sustainable development and responsible business practices globally. While the specific details of their involvement with the NGRBC may not be available through the provided link, it is likely that the UNDP has collaborated with the MCA and other stakeholders to promote responsible business conduct in India.
For more comprehensive information about the UNDP’s engagement with the NGRBC or other initiatives related to responsible business conduct in India, the presence of the guidelines on their website indicates that the UNDP acknowledges and supports the efforts of the Ministry of Corporate Affairs (MCA) in promoting responsible business conduct in India.
BRSR mandate by SEBI?
The BRSR is a reporting mandate introduced by the Securities and Exchange Board of India (SEBI) for listed companies in India. It requires certain companies to disclose their business responsibility and sustainability-related information in their annual reports.
The mandate requires the top 1,000 listed companies, based on market capitalization, to provide disclosures on their environmental, social, and governance (ESG) initiatives, policies, and performance. The BRSR framework aims to promote transparency, accountability, and comparability of ESG information among companies, enabling investors to make informed decisions and encouraging companies to adopt sustainable and responsible business practices.
Under the BRSR mandate, companies are required to report on the following key areas:
Environment: Companies need to disclose information related to their environmental impact, conservation measures, emissions, waste management, resource consumption, and initiatives for environmental protection.
Social: Companies are required to disclose their initiatives and performance in areas such as employee welfare, labour practices, human rights, health and safety, diversity and inclusion, community development, and stakeholder engagement.
Governance: Companies need to provide information on their corporate governance practices, board composition, board committees, ethics and transparency, risk management, and anti-corruption measures.
SEBI has specified the format and structure for reporting under the BRSR. The disclosures need to be made in a separate section of the annual report or through a standalone report. Companies are encouraged to align their reporting with recognized sustainability frameworks and standards, such as the Global Reporting Initiative (GRI) or the United Nations Sustainable Development Goals (SDGs).
The BRSR mandate aims to encourage companies to integrate sustainability and responsible business practices into their operations, enhance ESG disclosures, and drive long-term value creation for stakeholders. It promotes the integration of ESG factors into investment decisions and contributes to the overall development of sustainable capital markets in India.
SEBI's ESG disclosure, Ratings and Investing
SEBI, the Securities and Exchange Board of India, has taken significant steps to promote ESG disclosure and ESG investing in the Indian capital market. Here are some key initiatives by SEBI in this regard:
ESG Disclosure Guidelines: SEBI has mandated the disclosure of ESG-related information by listed companies. As mentioned earlier, the top 1,000 listed companies based on market capitalization are required to disclose their ESG initiatives, policies, and performance in their annual reports. SEBI has provided a framework known as the Business Responsibility and Sustainability Reporting (BRSR) for ESG disclosures.
ESG Ratings and Indices: SEBI has encouraged the development of ESG ratings and indices in the Indian market. It has permitted stock exchanges to launch ESG indices to track the performance of companies based on their ESG practices. This allows investors to identify and invest in companies with strong ESG credentials.
ESG Funds and Mandate for Mutual Funds: SEBI has introduced a separate category for ESG-focused mutual funds, enabling investors to specifically invest in funds that consider ESG factors. Additionally, SEBI has mandated that mutual funds disclose their voting policies and exercise active stewardship responsibilities, including engagement on ESG issues, with investee companies.
ESG Integration by Mutual Funds: SEBI has required mutual funds to adopt a policy for integrating ESG factors in their investment decisions. This encourages fund managers to consider ESG risks and opportunities while making investment choices.
ESG Training and Capacity Building: SEBI has emphasized the need for training and capacity building for market intermediaries, such as investment advisors and research analysts, to enhance their understanding of ESG principles and practices. This helps promote ESG awareness and expertise among market participants.
SEBI’s initiatives aim to mainstream ESG considerations in the Indian capital market, promote responsible investing, and encourage companies to improve their ESG performance. These efforts facilitate the integration of ESG factors into investment decisions, provide transparency to investors, and contribute to the long-term sustainable growth of the Indian economy.
BRSR related with GRI & SASB Standards
The Business Responsibility and Sustainability Reporting (BRSR) framework introduced by SEBI in India is not directly based on the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB) standards. However, the BRSR framework aligns with certain aspects of international ESG reporting standards and frameworks, including GRI and SASB.
The BRSR framework provides a structured format for companies to disclose their ESG-related initiatives, policies, and performance. While it does not explicitly mandate the use of specific international reporting standards, it encourages companies to align their reporting with globally recognized frameworks and standards.
Companies reporting under the BRSR framework have the flexibility to adopt relevant aspects of GRI and SASB, among other frameworks, to enhance the quality and completeness of their ESG disclosure. GRI’s comprehensive approach to sustainability reporting and SASB’s industry-specific materiality considerations can serve as valuable references for companies while preparing their BRSR disclosures.
The BRSR framework is not directly based on GRI or SASB, it allows companies to draw upon the principles and best practices of these internationally recognized standards to strengthen their ESG reporting and align with global reporting norms.
Future of ESG area in India
The future of ESG (Environmental, Social, and Governance) in India looks promising, with several trends and developments indicating an increased focus on sustainability and responsible business practices. Here are some potential areas of growth and development in the ESG space in India:
Regulatory Enhancements: There is a possibility of further regulatory enhancements by SEBI or other regulatory bodies to strengthen ESG reporting requirements. This could include expanding the scope of companies required to disclose ESG information or introducing specific guidelines for reporting on climate-related risks and opportunities.
Investor Demand: Growing awareness and demand from investors for sustainable and responsible investments will likely continue to drive the ESG agenda in India. Investors are increasingly considering ESG factors in their investment decisions, and this trend is expected to accelerate. This will create incentives for companies to improve their ESG performance and disclosures.
ESG Integration in Financial Institutions: Financial institutions, including banks and insurance companies, are likely to integrate ESG considerations into their risk assessments and lending practices. This integration can promote sustainable finance, encourage ESG improvements in companies, and provide additional support for ESG initiatives.
ESG Metrics and Standards: The development of standardized ESG metrics and reporting frameworks specific to the Indian context could further advance ESG practices. Harmonization of reporting standards, such as aligning with international frameworks like GRI and SASB, or developing Indian-specific standards, can facilitate comparability and consistency in ESG disclosures.
ESG Innovation and Technology: The adoption of innovative technologies, such as blockchain, artificial intelligence, and data analytics, can strengthen ESG measurement, monitoring, and reporting capabilities. These technologies can help companies gather, analyse, and report ESG data more efficiently and transparently.
ESG Engagement and Collaboration: Collaboration among various stakeholders, including companies, investors, regulators, and civil society organizations, will play a crucial role in advancing ESG practices in India. Enhanced engagement, knowledge sharing, and collective action can drive positive change and promote sustainability across sectors.
Emphasis on Climate Change and Sustainability: Given India’s vulnerability to climate change and the global push for climate action, there will likely be an increased focus on climate-related ESG factors, including renewable energy adoption, carbon footprint reduction, and climate risk management.
The future of ESG in India will depend on various factors, including regulatory developments, market dynamics, investor preferences, and global ESG trends. Continued efforts from government, businesses, and stakeholders to embed sustainable practices and disclosure mechanisms will be instrumental in shaping the future ESG landscape in India.
BRSR for SMEs
ESG reporting among SMEs is gaining importance globally. Many countries and organizations are recognizing the significance of ESG for all types of businesses, including SMEs.
In India, while there may not be a specific mandate for SMEs to comply with the BRSR framework at present, it is encouraged for SMEs to voluntarily adopt sustainable and responsible business practices and disclose relevant ESG information. Such reporting can provide SMEs with several benefits, including enhanced reputation, access to capital, and improved relationships with stakeholders.
Moreover, initiatives focused on promoting sustainable finance and responsible lending may encourage SMEs to disclose ESG information as part of their borrowing or financing requirements. Financial institutions and investors are increasingly considering ESG factors in their decision-making, which can create incentives for SMEs to adopt ESG practices and disclose relevant information.
It’s important for SMEs to stay updated on regulatory developments, industry trends, and investor expectations related to ESG reporting. Additionally, SMEs can refer to internationally recognized frameworks like GRI and SASB to guide their ESG reporting efforts and demonstrate their commitment to sustainability.
Ultimately, while the BRSR framework is primarily targeted at listed companies, the significance of ESG practices and reporting for SMEs is expected to grow, driven by market dynamics, investor expectations, and sustainability considerations.
Given that SMEs comprise a significant portion of the industry in India, there is a possibility that ESG reporting requirements and frameworks, such as the BRSR (Business Responsibility and Sustainability Reporting), could be extended to SMEs in the future. As sustainability and responsible business practices gain importance globally and in India, the focus on ESG considerations is likely to expand beyond large listed companies.
Regulatory bodies, including SEBI and other relevant authorities, may assess the feasibility and implications of implementing ESG reporting requirements for SMEs in the coming years. This could be influenced by factors such as the level of preparedness of SMEs, the availability of resources for compliance, and the broader policy objectives related to sustainable development.
It’s worth noting that globally, there is a growing emphasis on incorporating ESG practices among SMEs. Various countries have introduced initiatives, guidelines, and frameworks to support ESG reporting and sustainability efforts by SMEs. These initiatives aim to enhance transparency, encourage responsible practices, and provide SMEs with access to capital and market opportunities.
In India, the government and regulatory bodies have been taking steps to promote sustainability and responsible business practices among SMEs. For example, the Ministry of Micro, Small and Medium Enterprises (MSME) has launched schemes and programs to support sustainability initiatives and capacity-building efforts for SMEs.
As ESG awareness continues to grow, it is foreseeable that SMEs in India will face increasing pressure from stakeholders, investors, and customers to demonstrate their commitment to sustainability. This could drive the need for standardized ESG reporting frameworks and guidelines applicable to SMEs, which may align with or complement the existing BRSR framework.
Ultimately, while the timeline and specific requirements for SMEs to adopt ESG reporting remain uncertain, it is advisable for SMEs to proactively embrace sustainable practices and consider voluntary ESG reporting to enhance their competitiveness, build trust, and align with evolving market expectations.
