BRSR: A Comprehensive ESG Framework

In the realm of sustainable finance,?TRST01 Footprint?plays a crucial role in helping Indian companies navigate and comply with SEBI’s rigorous ESG standards. By offering AI-driven interfaces, real-time dashboards, and updated GHG calculators, TRST01? Footprint provides companies with the tools to define, manage, and monitor their climate goals effectively. This platform enables businesses to align seamlessly with SEBI's BRSR and BRSR Core requirements, promoting transparency and accuracy in ESG reporting. By supporting companies across various sectors, TRST01 Footprint empowers Indian businesses to enhance their sustainability practices, address regulatory demands, and build investor confidence, positioning them as leaders in India’s sustainable finance movement.

As global interest in Environmental, Social, and Governance (ESG) criteria grows, the Securities and Exchange Board of India (SEBI) is leading efforts to enhance India’s sustainable finance. By establishing mandatory ESG reporting frameworks and regulating ESG funds, SEBI is promoting transparency and accountability, paving the way for a more sustainable economy.

BRSR: Setting the Foundation for ESG Reporting

SEBI’s commitment to sustainability reporting started in 2012 with the Business Responsibility Report (BRR), initially applied to India's top 100 listed companies. This marked a significant shift towards incorporating non-financial performance in annual disclosures, promoting a more balanced view of corporate impact. In 2021, SEBI elevated this approach by replacing BRR with the Business Responsibility and Sustainability Report (BRSR), expanding its coverage to the top 1,000 listed companies. The BRSR integrates ESG criteria within nine principles derived from the National Guidelines on Responsible Business Conduct (NGRBC), covering areas from ethical practices and human rights to environmental conservation and community engagement.

Introducing BRSR Core: A Focused and Assured Framework

To deepen ESG accountability, SEBI introduced BRSR Core in 2023, honing in on key performance indicators (KPIs) across crucial ESG domains:

• Environmental: Greenhouse gas emissions, water and energy usage, waste management
• Social: Employee welfare, gender diversity, fair treatment of suppliers and customers
• Governance: Transparency in operations and business ethics

BRSR Core adopts a phased approach to assurance, requiring the top 150 companies to obtain external assurance on these disclosures by FY 2023-24, expanding to the top 1,000 companies by FY 2026-27. This gradual rollout ensures companies have the time and resources to adjust to these demands and maintain rigorous, conflict-free assurance.

Extending ESG to the Value Chain: Ensuring End-to-End Transparency

In a significant move to address the interconnected dynamics of business operations, SEBI has broadened the BRSR Core framework to encompass value chain partners. Starting from the fiscal year 2024-25, the top 250 listed companies will be mandated to disclose detailed Environmental, Social, and Governance (ESG) metrics pertinent to their entire value chain. This disclosure will be based on a comply-or-explain approach, meaning companies must either comply with the guidelines or provide an explanation for any deviations. By the following fiscal year, 2025-26, this requirement will evolve to include a limited assurance audit, further ensuring the integrity of the reported metrics.

This expansion of the framework reflects a more holistic and integrated vision of sustainability, compelling companies to consider not only their own practices but also those of their suppliers, partners, and the broader business ecosystem. By doing so, SEBI aims to foster greater accountability and transparency in corporate sustainability efforts, ultimately promoting a more sustainable and responsible business environment.

Regulating ESG Rating Providers for Credibility and Transparency

To prevent greenwashing and promote reliable ESG assessments, SEBI has established a regulatory framework for ESG Rating Providers (ERPs). These ERPs must now register with SEBI, adhere to transparency requirements, and avoid conflicts of interest. This regulation standardizes ESG ratings and instils greater confidence among investors, enabling them to make more informed decisions.

Empowering ESG Mutual Funds: A Structured Investment Pathway

In the realm of sustainable finance, SEBI has opened the door for ESG-focused mutual funds, allowing them to operate across six distinct strategies, each designed to support various aspects of responsible investment:

1. Exclusion: This strategy focuses on avoiding investments in industries or activities that are deemed harmful, such as tobacco, fossil fuels, weapons manufacturing, and other sectors that fail to meet ESG standards.
2. Integration: Here, ESG factors are integrated directly into the financial analysis and decision-making processes, where traditional financial metrics are combined with ESG considerations, resulting in a balanced, comprehensive evaluation of potential investments.
3. Best-in-Class Screening: This approach selects companies that demonstrate the highest ESG performance within their respective industries. By identifying leaders in sustainability practices, these funds invest in businesses setting industry standards in ethical and sustainable operations.
4. Impact Investing: Impact investing aims to generate measurable social or environmental benefits while alsoproviding financial returns. This approach underscores investments in companies or projects that tackle key ESG issues, including clean energy, affordable healthcare, and social equity.
5. Sustainable Objectives: Funds under this strategy invest in companies that contribute to broad sustainability goals, often aligned with the United Nations Sustainable Development Goals (SDGs) or other recognized ESG frameworks. This includes investments in businesses actively pursuing carbon neutrality, renewable energy initiatives, or other environmental and social objectives.
6. Transition Investments: Targeting industries undergoing significant transformation, such as energy, materials, and transportation, transition investments focus on companies actively working to reduce their environmental footprint. These investments support companies shifting from traditional business models to more sustainable practices.

Additionally, as of October 2024, SEBI requires that 80% of ESG funds be allocated to companies with complete Business Responsibility and Sustainability Report (BRSR) disclosures. This emphasis on transparency further aligns ESG investments with rigorous corporate reporting standards, enhancing trust in the ESG credentials of invested companies and mitigating risks associated with greenwashing. This stipulation means that companies need to adhere to SEBI's BRSR framework comprehensively to attract ESG-focused investment, promoting high standards of corporate transparency and accountability.

By fostering a transparent, accountable, and impact-oriented ecosystem, SEBI’s regulations empower investors to make meaningful contributions to sustainable development while encouraging companies to enhance their ESG practices, reinforcing India’s commitment to sustainable finance.

Regulating Green Debt and Deposits for Clear, Impactful Investments

SEBI’s regulatory framework extends to green debt securities, aiming to meet international standards and reduce the risks of greenwashing. SEBI enhances transparency in the green bond market by broadening the range of eligible green projects. Similarly, the Reserve Bank of India (RBI) has introduced a regulatory framework for green deposits, enabling banks and non-banking financial companies to accept deposits explicitly for green projects, further channelling funds toward sustainable initiatives.

India's Blueprint for Sustainable Finance and TRST01 Footprint

As India's sustainable finance landscape evolves, innovative technology platforms like TRST01 Footprint can significantly enhance ESG value creation by bringing robust digital solutions to support transparency, traceability, and data integrity. TRST01 Footprint’s digital Measuring, Monitoring,and Reporting (dMMR) solutions align seamlessly with ESG reporting frameworks by offering precise data management and real-time reporting capabilities, helping companies meet rigorous disclosure standards like BRSR and BRSR Core. By enabling end-to-end traceability across the value chain and enhancing ESG compliance through secure blockchain-based solutions, TRST01 Footprint empowers businesses to address the 4R framework—Regulatory, Risk, Reputation, and Reward—while building investor confidence and reinforcing India's commitment to sustainable growth.

SEBI’s robust approach to ESG regulation cultivates a strong foundation for sustainable finance in India. By emphasizing transparency, standardization, and risk management, SEBI is building an ecosystem that fosters investor trust and directs capital towards sustainable enterprises. As India works towards an inclusive, greener economy, SEBI’s ESG initiatives are instrumental in guiding the future of sustainable finance, positioning India as a leader in the global ESG movement.