Environmental, Social, and Governance (ESG) considerations are rapidly gaining momentum among investors and businesses around the world. In India, the Business Responsibility and Sustainability Reporting (BRSR) framework has been introduced to help companies report on their ESG performance. In this blog, we will explore the growing awareness and adoption of BRSR, regulatory push with SEBI, increase in investor interest, challenges of data availability, and limited independent verification.
Growing Awareness and Adoption
The BRSR framework was introduced in 2018 as part of the Securities and Exchange Board of India’s (SEBI) efforts to enhance the quality of ESG disclosures by companies. Since then, the framework has gained significant momentum, with more and more companies recognizing the importance of ESG reporting. The BRSR framework covers a range of issues, including climate change, human rights, labor practices, and anti-corruption.
According to a report by the Confederation of Indian Industry (CII), over 200 Indian companies have adopted the BRSR framework, representing a wide range of sectors. This is a significant increase from the 27 companies that reported under the framework in the first year of its implementation.
Regulatory Push with SEBI
SEBI has been the driving force behind the adoption of the BRSR framework in India. The regulator has taken several measures to promote ESG reporting, including mandating the top 1,000 listed companies to report on their ESG performance in a phased manner. This move is expected to increase the adoption of the BRSR framework significantly.
Moreover, SEBI has also introduced a scorecard system for assessing companies’ ESG performance. The scorecard includes parameters such as the company’s carbon emissions, water consumption, and employee safety records. This will enable investors to compare the ESG performance of companies across sectors.
Increase in Investor Interest
Investors are increasingly taking ESG factors into account when making investment decisions. A report by the CII shows that 71% of institutional investors in India consider ESG factors while making investment decisions. Moreover, the report also suggests that companies that report on their ESG performance have a better chance of attracting investment than those that do not.
The BRSR framework is expected to increase the transparency and comparability of ESG data, making it easier for investors to assess companies’ sustainability performance.
Challenges of Data Availability
One of the biggest challenges in ESG reporting is the availability of reliable data. Companies may not have complete data on ESG factors or may not have the systems in place to collect and report on this data. This can make it difficult for investors to assess a company’s ESG performance accurately.
To address this challenge, SEBI has asked companies to disclose their sources of data and the methodology used to calculate their ESG performance. This will enable investors to understand the limitations of the data and make informed investment decisions.
Limited Independent Verification
Another challenge in ESG reporting is the limited independent verification of the data. Companies may not have their ESG data audited by an independent third party, which can raise questions about the accuracy and reliability of the data.
To address this challenge, SEBI has proposed that companies engage a third-party auditor to verify their ESG performance data. This will increase the credibility of the ESG data and help investors make informed decisions.
The BRSR framework has the potential to transform the ESG reporting landscape in India. The growing awareness and adoption of the framework, coupled with SEBI’s regulatory push and increasing investor interest, are positive signs. However, there are still challenges to overcome, such as data availability and limited independent verification. Companies need to recognize the importance of ESG reporting and take steps to improve the quality and reliability of their data. Additionally, regulators need to ensure that the BRSR framework is implemented effectively and that companies are held accountable for their ESG performance. With these efforts, the BRSR framework can become a powerful tool for promoting sustainable business practices in India.
In conclusion, the BRSR framework represents a significant step forward in promoting ESG reporting in India. The framework has already gained significant momentum, with increasing adoption by companies and growing interest from investors. However, challenges related to data availability and limited independent verification remain, and these need to be addressed to enhance the credibility and usefulness of the framework. Nonetheless, the BRSR framework has the potential to promote greater transparency and accountability among companies and help drive sustainable business practices in India. It will be interesting to see how this framework evolves over time and how it contributes to India’s overall sustainability goals.