Evolution of ESG Data Disclosure/ Reporting in INDIA...!

OVERVIEW:

ESG?– An ever evolving & an integral part of Business Sustainability. ESG disclosure helps organizations, & its stakeholders understand about non-financial performance of the organization and lets them identify Risks & Opportunities, Non-Financial Growth Prospects, investment viability, etc…!

ESG has been a global trend since decades, however got momentum in the recent past, & we all witness the growth of ESG in bringing Business Sustainability

As of December?2021, Global ESG assets under management (AUM) stood at?USD 2.7 Trillion?and is forecasted to be?USD 53 trillion?by?2025?as per?BLOOMBERG.

The data from Morningstar India shows that the fund size of?ESG Funds?stood at?Rs 12,447?crore as of March?2022, up from?Rs 2,268?crore in March?2019, over?five-fold?jump in last 4 years.

Evolution in INDIA:

GOI (Government of India) identified the need to address aggressive negative effects, stopping businesses from growing sustainably a decade ago way back in 2009, to address concerns, issues in Environment, Social, and Governance parameters of business.

CSR (Corporate Social Responsibility) Voluntary Guidelines (Year 2009)

GOI had then taken the first step towards having achieved business suitability by brining CSR (Corporate Social Responsibility) Voluntary Guidelines in the year 2009, issued by MCA (Ministry of Corporate Affairs) on Corporate Social Responsibility.

Fundamental Principles

·??????Care for all Stakeholders

·??????Ethical functioning

·??????Respect for Workers' Rights and Welfare

·??????Respect for Human Rights

·??????Respect for Environment

·??????Activities for Social and Inclusive Development

NVGs – National Voluntary Guidelines (Year 2011)

GOI had then taken the next step towards having achieved business suitability by brining NVGs – National Voluntary Guidelines in July 2011, issued by MCA (Ministry of Corporate Affairs) on Business Responsibility.

·??????Businesses should conduct and govern themselves with integrity in a manner that is Ethical, Transparent and Accountable.

·??????Businesses should provide goods and services in a manner that is sustainable and safe

·??????Businesses should respect and promote the well-being of all employees, including those in their value chains.

·??????Businesses should respect the interests of and be responsive to all their stakeholders.

·??????Businesses should respect and promote human rights.

·??????Businesses should respect and make efforts to protect and restore the environment.

·??????Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.

·??????Businesses should promote inclusive growth and equitable development.

·??????Businesses should engage with and provide value to their consumers in a responsible manner.

NVGs were the revised version of CSR (Corporate Social Responsibility) Voluntary Guidelines released in December, 2009.

The NVGs are formulated with the objective of creating positive framework conditions to advance the role of business in economic growth which is socially and environmentally sustainable, while also ensuring enhanced competitiveness and integration into the global markets

BRR – Business Responsibility Report (Year 2012)

·??????SEBI (Securities Exchange Board of India) has announced in BRR in the year 2011, which was released by MCA in 2012.

·??????The first framework developed by India for organisations to disclose ESG data (Non-Financial Performance of the organisation).

·??????ESG reporting as per BRR was made mandatory for top 100 listed entities as per MCap (Market Capitalisation)?

·??????To provide transparency for the investments and to protect the interests of investors (Stakeholders). So, Investors get access to suitability related risks & opportunities and to identify best suitable organisations for their investment portfolio.

CSR – Corporate Social responsibility (Year 2014)

On April 1, 2014, India became the first country to legally mandate Corporate Social Responsibility.

GOI made it mandatory for companies registered under the Indian Companies Act 2013 must comply with certain CSR obligations under Section 135 of the act, including spending funds on CSR activities.

Organisations fall mandatory CSR spent category?to spend?2 percent of their average net profit in the past 3 years?on CSR activities. If a company fails to spend the mandated amount on CSR activities, it is required to explain the reasons for the same in the Board's report.

BRR – Business Responsibility Report (Year 2015)

·??????ESG reporting as per BRR was made mandatory for top 500 listed entities as per MCap (Market Capitalisation)

IR – Integrated Reporting (Year 2017)

A voluntary adoption of IR-Integrated Reporting by SEBI for top 500 listed entitles by MCap from FY 2017-2018

The increased awareness, investor expectations and perceived benefits have resulted in more than 30 companies adopting integrated reporting in?India?through the FY 2018-19

NGRBC – National Guidelines on Responsible Business Conduct (Year 2019)

·??????National Guidelines on Responsible Business Conduct (NGRBC) was established in 2018 by MCA, and released in 2019

·??????Developed guidelines and principles for businesses to follow the statutory & regulatory compliance requirements, based on UNGP (United Nations Guiding Principles)

·??????These principles are voluntary. However, GOI expects all businesses to integrate & follow these principles irrespective of their ownership, size, sector, structure or location

·??????GOI expects all companies that are invested or operating in India, including foreign multinational corporation (MNCs), has to abide by these guidelines

·??????NGRBC has developed 9 Core Principles for business responsibility, which are interdependent, interrelated, and non-divisible?

·??????Expects all businesses to address & disclose the issues with integrity

NGRBC’s 9 Principles:

·??????Principle 1: Businesses should conduct and govern themselves with Ethics , Transparency and Accountability

·??????Principle 2: Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle

·??????Principle 3: Businesses should promote the wellbeing of all employees

·??????Principle 4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised

·??????Principle 5: Businesses should respect and promote human rights

·??????Principle 6: Business should respect, protect, and make efforts to restore the environment

·??????Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner

·??????Principle 8: Businesses should support inclusive growth and equitable development

·??????Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner

NGRBC’s 9 Principles are the upgraded & amended principles to previously released NVGs

BRR – Business Responsibility Report (Year 2019)

·??????ESG reporting as per BRR was made mandatory for top 1000 listed entities as per MCap (Market Capitalisation) – Another amendment to previous amendment of BRR in 2015

BRSR – Business Responsibility & Sustainability Report (Year 2021)

·??????The Business Responsibility & Sustainability Report was introduced by SEBI in 2021 in collaboration with NGRBC by integrating GRI, SASB, CDP, TCFD, & SBTi based on UNGP, and aligned its objectives with UNSDGs

·??????Non-Financial Disclosure is made mandatory for top 1000 listed organisations by market capitalisation from 2022-2023 Financial Year, though it is voluntary for 2021-2022

·??????An effective compliance and communication tool for an organisation's non-financial disclosures and is the next step in mandatory ESG reporting in India.

·??????Aims to establish links between the financial results of a business with its ESG performance

BRSR is not just for listed entities of Indian Stock Exchanges. BRSR has guidelines for all entities registered with Indian Govt can practice these guidelines for their Non-Financial Disclosure.

FACTS & FIGURES:

·???????Nearly?one out of five (18.5%)?small and mid-caps?are?using ESG standards, such as the UN SDG, GRI, or SASB. [Quoted Companies Alliance]

·???????More than?one in four S&P 500 companies?that conducted earnings calls for Q4 2020?cited “ESG”. This represents a 63% increase in ESG mentions from the previous quarter, and the highest number of ESG mentions in the last ten years. [FactSet]

·???????More than 200 companies?have signed?The Climate Pledge,?a pact to reach the Paris Agreement goal of net zero carbon 10 years early. [The Climate Pledge]

·???????80% of the world’s largest companies?are?reporting exposure?to physical or market transition risks associated with climate change [S&P Global Market Intelligence]

·???????Climate-related weather events?are expected to?cost businesses $1.3 trillion?by 2026 [CDP]

·???????76% of consumers?say they?will stop buying from companies?that treat the environment, employees, or the community in which they operate poorly [PwC]

·???????ESG propositions had a positive impact on equity returns?63% of the time [McKinsey]

·???????71% of CEOs?believe it is?their?personal responsibility?to?ensure that the organization’s ESG policies reflect the values of?their customers [KPMG]

Links for more ESG Stats

https://www.perillon.com/blog/esg-statistics#:~:text=ESG%20offers%20numerous%20benefits%2C%20including,ESG%20is%20here%20to%20stay.

https://www.statista.com/topics/7463/esg-and-impact-investing/#dossierKeyfigures

https://flow.db.com/more/esg/five-key-facts-on-esg-finance-and-investment

Relevant Links:

https://www.mca.gov.in/Ministry/latestnews/CSR_Voluntary_Guidelines_24dec2009.pdf

https://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf

https://www.sebi.gov.in/legal/circulars/aug-2012/business-responsibility-reports_23245.html

https://www.mca.gov.in/Ministry/pdf/Draft_Disclosure_Framework_Committee_Report.pdf