Evolution of SEBI's ESG Framework: From Stewardship Code to Value Chain Implementation

The landscape of Environmental, Social, and Governance (ESG) compliance in India has significantly evolved since 2020. Looking back at an insightful article published by Vaneesa Agrawal on the Thinking Legal blog in March 2020, which first analyzed SEBI's Stewardship Code, we can now trace the remarkable journey of ESG implementation in India's corporate sector.

Vaneesa Agrawal, recognised by Legal 500 as a Leading Individual for Corporate, Commercial, and M&A practice, points out, "The initial ESG Framework consisted of principles aimed at introducing impact-based investing in companies with a view to achieving sustainability. This framework has now matured into a more comprehensive system with specific timelines and implementation guidelines."

The Foundation: 2020 Stewardship Code

The Securities and Exchange Board of India's introduction of the Stewardship Code in 2020 marked a pivotal moment in India's ESG journey. "Global institutions and funds have shown keen interest in companies that follow ESG principles," explains Vaneesa Agrawal, a prominent SEBI lawyer. "Many venture funds have institutional investors that require them to introduce ESG principles for their portfolio."?

SEBI expert lawyers also highlight that in India, this trend continues to grow stronger, each passing year.?

The 2020 Code, as explained by SEBI lawyers, introduced six key principles, including transparent disclosures of stewardship responsibilities, management of conflicts of interest, monitoring of investee companies, intervention strategies, voting policy, and periodic reporting. SEBI expert lawyers hope this framework sets the stage for future developments in India's ESG landscape and aligns the country's corporate governance standards with global best practices.

Recent Developments: SEBI's Phased Implementation Approach

In a significant development in December 2024, SEBI announced important modifications to its ESG compliance framework. SEBI lawyers experienced in this field say that these changes reflect a more nuanced understanding of the challenges faced by companies in implementing comprehensive ESG measures. The new approach introduces a graduated system where companies can adapt to increasingly complex reporting requirements over time, rather than facing immediate full compliance demands. SEBI expert lawyers highlight that the framework now acknowledges the varying capabilities of different-sized organizations and sector-specific challenges in implementing ESG measures.

Highlighting the significance of these changes, Vaneesa Agrawal, a SEBI expert lawyer notes, "The phased implementation approach demonstrates SEBI's commitment to balancing regulatory oversight with practical business considerations."

In tune with that, SEBI lawyers do point out that the revised framework also introduces more flexible reporting requirements for smaller companies and provides detailed guidance on how organizations can progressively enhance their ESG capabilities.

Key Timeline Changes

The recent SEBI board meeting introduced several crucial modifications to the ESG disclosure requirements, creating a more realistic timeline for implementation. SEBI expert lawyers emphasize that understanding these changes is crucial for businesses preparing their compliance strategies. The key modifications include:

• Value Chain Disclosures: Extended to FY 2025-26 (previously FY 2024-25) - This requirement involves detailed reporting of environmental and social impacts throughout a company's supply chain and distribution network. SEBI lawyers suggest that companies must now map their entire value chain and assess the ESG performance of their suppliers, vendors, and other business partners.
• Assessment and Assurance: Pushed to FY 2026-27 (previously FY 2025-26) - This involves third-party verification of ESG disclosures, ensuring the accuracy and reliability of reported information. In this case, SEBI lawyers suggest that companies will need to engage qualified assessors to verify their ESG data and reporting processes.

Commenting on these extensions, SEBI lawyers emphasize that this timeline adjustment provides companies with the necessary breathing space to develop comprehensive ESG reporting mechanisms. It's particularly crucial for organisations still working on establishing their value chain monitoring systems.

"The extended deadlines also allow companies to invest in proper data collection systems and train their staff in ESG reporting practices."

- Vaneesa Agrawal, SEBI expert lawyer & founder of Thinking Legal?

Impact on Business Operations

The revised framework represents a strategic shift in how companies approach ESG compliance. "Companies that address the concerns of investors and have modelled their products, services, and business processes to align with the ESG framework have witnessed higher valuations," Vaneesa Agrawal observes.?

This correlation between ESG compliance and market value continues to strengthen. SEBI lawyers highlight that the impact extends beyond mere compliance, as organisations are finding that strong ESG practices can lead to improved risk management, enhanced operational efficiency, and better relationships with stakeholders. To top it off, SEBI expert lawyers also point out that many companies are also discovering that ESG integration opens up new business opportunities and markets, particularly in environmentally conscious sectors.

Guidelines and Implementation

The implementation framework builds upon the guidelines prepared by Principles of Responsible Investment in partnership with the United Nations. Vaneesa Agrawal, a SEBI expert lawyer, elaborates, "The initiative remains driven by the objective of achieving the 17 Sustainable Development Goals as identified by the United Nations. However, the new timeline allows for a more thorough integration of these principles."

Strategic Advantages of the New Timeline

The extended implementation period offers several benefits:

• Better Preparation: Companies get more time to establish robust monitoring systems
• Quality Assurance: Enhanced ability to ensure accurate and comprehensive reporting
• Stakeholder Engagement: Additional time for engaging with value chain partners
• Resource Allocation: More efficient distribution of resources for ESG implementation

"While there is no standardised format for reporting ESG principles," Vaneesa Agrawal, an expert SEBI lawyer points out, "fund managers should incorporate various guidelines issued by international organisations into their own reporting framework in furtherance of the adoption of ESG principles."

Looking Ahead

SEBI lawyers across India discuss that the future of ESG compliance in India appears to be moving toward a more structured and well-defined framework. As Vaneesa Agrawal suggests, "The phased implementation approach should be viewed as an opportunity for companies to build sustainable and comprehensive ESG practices rather than merely meeting compliance requirements."

Conclusion

The evolution of SEBI's ESG framework from 2020 to the present demonstrates a thoughtful approach to implementing sustainable business practices in India. SEBI lawyers show that the recent timeline extensions reflect an understanding of the complexities involved in ESG implementation while maintaining the commitment to long-term sustainability goals.