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ESG regulations in India

  • Published
    13th Mar, 2023
Context

The evolution of Environmental, social, and governance (ESG) laws and regulations is, however, still at a nascent stage in India, where the focus is often on providing protections regarding the environment or workplace conditions without incorporating the controls and disclosure of contemporary ESG regulation.

What are ESG STANDARDS?

  • Environmental, Social, and Governance (ESG) goals are a set of standards for a company’s operations that force companies to follow better governance, ethical practices, environment-friendly measures and social responsibility.
  • Measurement of the company is not restricted to just the economic parameter which includes such as shareholder return. But they are also measured by their environmental impact, commitment to social issues and the soundness of their corporate governance and protection of shareholder rights.
  •  The evolution of ESG laws and regulations is, however, still at a nascent stage in India,

How ESG differs from CSR?

  • India has a robust corporate responsibility policy that mandates that corporations engage in initiatives that contribute to the welfare of society.
    • In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
    • The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.
    • The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act.  These include Eradicating extreme hunger and poverty, Promotion of education, gender equality and empowering women etc. 
  • While ESG regulations differ in process and impact. 
    • For Instance, The U.K. Modern Slavery Act requires companies with business in the U.K. and with annual sales of more than £36 million to publish the efforts they have taken to identify and analyse the risks of human trafficking, child labour and debt bondage in their supply chain; establish internal accountability procedure. 
    • The EU’s Sustainable Finance Disclosure Regulation requires banks, pension funds, asset managers and other financial market participants to disclose how they have integrated sustainability risks into their investment decision-making processes. 

Why is ESG relevant in India?

  • India has a plethora of legislations and institutions regarding environmental, social and governance issues. 
    • Some of them are the Environment Protection Act of 1986, and quasi-judicial organisations such as the National Green Tribunal etc.
  • While these laws and bodies provide important environmental and social safeguards, new initiatives in India go further, establishing guidelines that emphasise monitoring, quantification and disclosure. 
  • Indian active engagement in environmental policy: Recently, RBI said it would be auctioning 80 billion rs in green bonds. Also, the government has committed to be net neutral by 2070;
  • The Securities and Exchange Board of India (SEBI) has substantially revised the annual Business Responsibility and Sustainability Report (BRSR) required by the 1,000 largest listed companies in India.
  • SEBI describes the current report format as a “notable departure” from previous disclosure requirements, which are aligned with evolving global standards. 
    • Disclosures range from greenhouse gas emissions to the company’s gender and social diversity. 

What are the challenges in the adoption of ESG Norms?

  • Reluctance among corporates: there is reluctance among corporates to adopt sustainability measures as they increase costs (e.g., installation and operating costs of an effluent treatment plant that reduces the efflux of harmful pollutants to rivers/water bodies).
  • Absence of universally recognized ESG reporting standards:  The investors and corporates have been using different frameworks like the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosures (TCFD) etc.
  • Against climate equity: It would be equivalent to undermining the efforts made for equity and climate justice to require reporting on environmental standards under the ESG framework that goes beyond a country's commitments (like INDC).

Way forward

  • Standard parameters: There should be uniformity across various reporting standards and create a standard ESG Reporting Framework. 
  • Robust internal ESG Frameworks: There should a well-thought-out ESG framework which is comprehensive in nature. 
  • It should not just include environmental sustainability but should also cover social and governance issues. 

 Increase awareness: there is a need to increase awareness about the ESG norms among investors. This will influence businesses to adopt sustainability measures.

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