ESG Reporting

Cultivating Resilience: The Crucial Role of Climate Risk Disclosure for Businesses

by with No Comment SustainabilitySustainability Reporting

Climate risk disclosure is essential for businesses amid growing climate challenges. India improves ESG reporting with SEBI regulations.

Understanding the Business Impact of Climate Change: The Growing Significance of Climate Risk Assessment and Disclosure

Amidst the rising temperatures, erratic monsoons, and the ever-increasing spectre of climate-related disasters, businesses face an imminent threat that transcends geographical boundaries. Failing to grasp the profound implications of climate change, companies risk not only disruptions in their supply chains but also face potential shifts in policies, damage to brand reputation, and a myriad of other challenges that may prove insurmountable without proactive climate risk assessment and disclosure.

Climate risk refers to the potential adverse impacts and consequences that climate change and extreme weather events pose to various aspects of society, the economy, and the environment. These potential risks are mainly linked to the shifting climate patterns and the disruptions they may generate. According to the Task Force on Climate-related Financial Disclosures (TCFD), climate risks can be divided into two categories – risks related to the transition to a lower-carbon economy and risks related to the physical impacts of climate change. Transition risks include policy and legal risks, technology risks, market risks and reputation risks. Physical risks on the other hand include acute risks (event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods) and chronic risks (longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.) [1] In order for companies to be well informed of the risks posed to their business, climate risk assessment and climate-related disclosure are of urgent importance. Based on a business priorities, there are various frameworks that can be used to disclose climate-related information. The widely used ones are TCFD, Global Reporting Initiative (GRI), CDP, SASB Standards (Sustainability Accounting Standards Board), and the India-centric Business Responsibility and Sustainability Reporting (BRSR).

As nations approach their Net Zero goals, the significance of non financial disclosures has heightened in the contemporary business landscape. The increasing emphasis on these disclosures is driven by investors and stakeholders urging companies to provide more comprehensive information regarding their sustainability and environmental, social, and governance strategies. Several legislative measures mandating non-financial disclosures are currently in preparation or have already taken effect, including:
● Regulation (EU) 2020/852 of the European Parliament and the Council, implemented in July 2020, establishes a framework for promoting sustainable investment (EU Taxonomy Regulation).
● The Corporate Sustainability Reporting Directive (CSRD) and the Directive onCorporate Sustainability Due Diligence Directive (CSDDD).
● SEBI mandated BRSR for the top 1000 listed companies in India [3]

India’s Evolving ESG Reporting Landscape: Progress, Regulation & Rising Global Recognition

According to a report by EY, Indian companies are trailing behind in both coverage and quality of reporting compared to global averages. Nevertheless, the number of Indian companies responding to disclosure platforms such as CDP is increasing. Notably, 2020 was the first year Indian companies were featured on the CDP A-List. A report by EY recorded a significant year-on-year improvement in coverage, which was up to 65% in 2022 from 49% in 2021 [4]

The rise in reporting is undoubtedly connected to recent regulations issued by the Securities and Exchange Board of India (SEBI). These regulations mandate the top 1,000 companies in the country to generate a business responsibility and sustainability report starting from the financial year 2022-2023. For the preceding financial year (2021-2022), companies were encouraged to voluntarily create these reports.[5]

As of July 2023, SEBI mandated the top 150 listed companies to seek assurance for their BRSR Core reporting. BRSR Core comprises key indicators across the 9 ESG principles. Mandatory assurance will gradually be required by the top 1000 listed companies by 2026-27. Further, listed companies must include value chain disclosures in their Annual Report, following the BRSR Core. The value chain should cover the major partners both upstream and downstream of the listed entity, accounting for 75% of its purchases and sales by value. This positions India in a good place with respect to the assurance of ESG reporting [10]

S&P Global ESG Scores raw data, based on the 2022 S&P Global Corporate Sustainability Assessment (CSA) reports about one-quarter of Indian companies (24%) have a plan to adapt to the physical impacts of climate change, compared with the global average of 21%. Further, nearly 40% of India-headquartered companies conduct physical risk assessments.[6]

Navigating ESG and Climate Disclosure Challenges In India: Strategies, Barriers and Opportunities

Companies are grappling with challenges in establishing effective systems for tracking and reporting crucial metrics, with regulatory mandates often necessitating collaboration with various protocols or frameworks to ensure meaningful disclosures. Carbon emission disclosures, for example, require expertise in GHG protocols and carbon accounting mechanisms. However, many Indian businesses lack the required expertise and capacity for these demanding processes, which can lead to reporting fatigue. Nevertheless, innovative approaches and strategic partnerships can facilitate sustainability integration, ultimately enhancing long-term growth prospects. India faces a multitude of hurdles in embracing Environmental, Social, and Governance (ESG) principles due to factors spanning regulatory, economic, cultural, and infrastructural realms. These challenges encompass gaps in ESG awareness and education, difficulties in aligning ESG with business strategies, a short-term financial focus, concerns about data quality and availability, issues related to materiality assessments, regulatory fragmentation, financial
burdens linked to ESG adoption, cultural and social factors, supply chain complexities, and
the risk of “greenwashing.” However, despite these challenges, India is witnessing growing interest in ESG adoption, with businesses increasingly recognizing the potential benefits, including improved reputation and better access to capital. To overcome these hurdles, businesses must set clear ESG
goals, develop comprehensive ESG strategies, gain stakeholder support, provide ESG training, and collaborate with ESG experts. These efforts can position Indian businesses for long-term success and align them with global sustainability goals and frameworks. Moreover, ESG practices offer advantages such as alignment with sustainable development goals, access to green finance, enhanced innovation and efficiency, positive societal and environmental impact, and improved brand value.

Efforts to mitigate and adapt to climate change can produce opportunities in the form of resource efficiency and cost savings, low-carbon energy transition, new products and services, and supply chain resilience. According to CDP in 2021, 87% of the responding companies identified climate-related opportunities as having the potential to make a substantive financial or strategic impact on their business performance.[7]

India’s commitments to net-zero targets require more companies to come forward and set climate goals supported by adequate disclosures for transparency and accountability. Businesses are a very important part of climate action efforts and need to emerge as active collaborators in this conversation. Progress is visible, but the pace is very slow and thus the targets are at risk of being too ambitious and not being achieved in the given timeframe.

Reach out to Carbon Mandal by writing to us at info@carbonmandal.com to start your ESG reporting journey!

List of references:

  1. Task Force on Climate-related Financial Disclosure. (2017) Recommendations of the Task Force on Climate-related Financial Disclosures.
    https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf .
    Accessed 11th October 2023
  2. PricewaterhouseCoopers. (2022) Task force on climate-related financial disclosures – 2022 Status report.
    https://www.pwclegal.be/en/news/task-force-on-climate-related-financial-disclosure
    s—2022-statu.html.     Accessed 11th October 2023
  3. PricewaterhouseCoopers. ESG reporting and preparation of a Sustainability Report.
    https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/es
    g-reporting.html.     Accessed 12th October 2023
  4. Ernst & Young. (2021) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/assurance/ey-if-the-climate-disclosures-are-improving-why-isnt-decarbonization-accerlerating.pdf
    Accessed 12th October 2023
  5. Ernst & Young. (2022) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/climate-change/e
    y-global-climate-risk-barometer-report-v2.pdf    . Accessed 18th October 2023
  6. Jennifer Laidlaw, S&P Global. (2023) With Physical Climate Risks Increasing in India, Adaptation Strategies Take Priority.
    https://www.spglobal.com/en/research-insights/featured/special-editorial/look-forw
    ard/with-physical-climate-risks-increasing-in-india-adaptation-strategies-take-priority .
    Accessed 13th October 2023
  7. CDP. (2022) Disclosure: Imperative for a Sustainable India.
    https://cdn.cdp.net/cdp-production/cms/reports/documents/000/006/164/original/
    CDP_AnnualDisclosureReport2021_V7.pdf?1663682392 .     Accessed 17th October2023
  8. European Financial Reporting Advisory Group. How To Improve Climate-Related Reporting.
    https://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/SiteAssets/
    European%20Lab%20PTF-CRR%20%28Supplement%201%29.pdf&AspxAutoDetectCo
    okieSupport=    1 . Accessed 18th October 2023
  9. KPMG. (2022) Challenges and opportunities in ESG reporting and assurance.
    https://kpmg.com/xx/en/blogs/home/posts/2022/12/challenges-and-opportunities-i
    n-esg-reporting-and-assurance.html .     Accessed 19th October 2023
  10. Security Exchange Board of India. (July 2023) Circular No. – SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122.
    https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assuranceand-esg-disclosures-for-value-chain_73854.html . Accessed 26th October 2023.
Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future

Quantifying the Unseen: Assessing the Economic Impact of Hidden Green Externalities

by with No Comment EducationSustainabilitySustainability Reporting

Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future

Abstract

Accounting, as a critical language of finance, plays a pivotal role in shaping modern economies. This research article delves into the multifaceted accounting world, specifically focusing on Green Externalities Accounting in India. It explores the impact of green accounting toolkits and standards on economic development, state relations, and businesses. The article concludes with a call to action for a more sustainable future.

Introduction to Green Externalities

Anthropogenic climate change poses a significant threat, capable of engulfing us in one fell swoop, and its impacts extend far beyond a sudden wipeout. The cumulative acts of degradation have prompted various organisations to develop action plans and indices, such as the Climate Risk Index [1] aimed at addressing the threats of climate change. As determining forces, how can human-run organisations position themselves within the shell of nature’s resources and contribute to a more sustainable narrative?

While there is plenty we can do to keep our activities in check, accounting remains at the forefront in offering a structured process of recording, summarising, and analysing financial transactions among and across leading organisations, businesses, and states. It provides stakeholders with essential information to make informed decisions, influencing business strategies and socio-economic landscapes. Highlighting the pivotal role of finance in climate policy, Article 2 of the Paris Agreement emphasises the necessity of aligning financial flows with a trajectory aimed at reducing greenhouse gas emissions and enhancing resilience to climate change.

India’s adoption of International Financial Reporting Standards (IFRS) was initially announced by the Securities and Exchange Board of India (SEBI) in 2010. The convergence and adoption, however, were optimal and only applied to a few companies voluntarily. [2] Although limited, we can not discount the role that accounting standards such as the IFRS and the like play in determining GDP standards and broader economic analysis; much of which has come to stand synonymous with progress and development. Amidst the towering skyscrapers and bustling city streets, the relentless pursuit of economic growth often takes centre stage. However, as we marvel at the soaring GDP figures, it’s time to ask a pivotal question: Does GDP capture the true growth of the nation? A World Bank report from a few years ago revealed that India incurred a staggering cost of $550 billion, equivalent to approximately 8.5% of its GDP, as a consequence of air pollution alone. Furthermore, the expenses related to external factors like water pollution and land degradation were potentially even more substantial. India’s practice of exporting commodities effectively results in the depletion of its natural resources, which in turn escalates the risk of desertification and significant land degradation. If these alarming trends persist, it is plausible that India’s food production could experience a decline of 10-40% within a century. Therefore, when celebrating GDP growth, it is imperative that we also take into account the depletion of our nation’s natural capital in our economic assessments. [3]

Taking into account green externalities aims to quantify the environmental impacts of economic activities, such as pollution or resource depletion, makes them visible in economic assessments. It considers factors including but not limited to greenhouse gas emissions, water usage, and land degradation. In the pursuit of development through multidisciplinary approaches encompassing socio-economic concerns and environmental sustainability, it becomes imperative to ensure enduring progress for the future. This is particularly relevant for developing economies like India, where a shift from agriculture to manufacturing and services sectors is underway. The inadequacy of the traditional System of National Accounts (SNA), which measures Gross Domestic Product (GDP) and Gross National Product (GNP), lies in its inability to capture the true essence of a nation’s wealth, income, and performance. It fails to account for the environmental impact via externalities, be it positive or negative. Additionally, the conventional SNA disregards the value of natural resources that remain untransformed into marketable goods or services. The concept of ecosystem services, which denotes the environment’s free services to humanity, remains absent from current national accounting methods. These services, often termed as the ‘GDP of the poor,’ are especially critical for impoverished communities. The absence of ecosystem services in national accounting overlooks their significant contribution. The evolution of Green Externalities accounting has gained substantial urgency in recent years due to the significant losses nations have suffered from neglecting this crucial aspect of economic analysis. Severity has unearthed consequences including habitat destruction, resource depletion, and climate change. These issues have led to ecological crises, natural disasters, and adverse health effects, all of which have imposed substantial economic costs.

As per the United Nations Environment Programme Report, 1997 [4], greening the GDP is one of our major pathways towards a Green Economy. The integration of Green Accounts into traditional accounting systems will not only enable policymakers to analyse the interconnections between a nation’s economic activities and its environmental costs but also quantify these costs at various stages of production processes. This will empower relevant agencies to access precise data for amending industrial practices that surpass established environmental limits. Beyond accounting and assessment, parameters associated with Green Accounting provide a more accurate representation of economic growth by considering environmental costs and holding businesses accountable for their environmental footprint. Finally, it enables governments to tailor policies for regional variations in environmental impact, promoting balanced development.

Tools for Green Externalities Accounting

Creating an effective toolkit for Green Externalities Accounting involves defining clear metrics, establishing data collection protocols, and developing standardised reporting guidelines. It requires encompassing both qualitative and quantitative data to assess environmental impacts comprehensively. To facilitate the development of Environmental Accounts, key international organisations, including the United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, and the World Bank, jointly issued the System of Environmental and Economic Accounts (SEEA-2003) handbook in 2003. Two primary approaches to Green Accounting have been proposed: one involves creating separate ‘satellite’ accounts dedicated to valuing natural resources, while the other advocates for a comprehensive modification of the traditional SNA to fully incorporate environmental accounts. In India, the Green Indian States Trust (GIST) took a significant step by creating environmentally adjusted accounts in 2003 under the Green Accounting for Indian States Project. Nevertheless, Green Accounting in India is in its infancy. The former Minister of Environment and Forests, Government of India, Mr. Jairam Ramesh, advocated for a transition towards incorporating environmental factors into national accounts by 2015. The TEEB India (The Economics of Ecosystem and Biodiversity) Project, initiated in 2011, conducted some standalone studies in this regard but hasn’t sufficiently contributed to the development of a Green GDP due to a fragmented approach.

Among the list of prominent reporting and decision-making tools that businesses and organisations are adopting, this article briefly discusses four of the following: Environmental Impact Assessment (EIA), Life Cycle Assessment (LCA), Carbon Pricing, and Sustainability and ESG Reports.

Environmental Impact Assessment (EIA) happens to be one of the many successful policy innovations of the 20th Century for environmental conservation. In India, it took off in the late 1970s and was first ordered during the early 1980s, on the Silent River Valley hydroelectric project. Since its induction in countries undergoing rapid industrialisation and economic growth-such as India- EIA has served as a vital toolkit in helping entities account for the environmental impact of their operations and decision-making and ensure that progress is aligned with environmental protection.

As for its contemporary, the Life Cycle Assessment (LCA). LCA helps pinpoint environmental “hotspots” and offers insights into reducing the substantial energy and material inputs, emissions, and waste, influencing decision-making at various project stages for improved environmental performance. [5] Energy audits generally encompass a thorough examination of an entity’s energy consumption patterns, encompassing the operation of energy-demanding equipment like HVAC systems, lighting, and industrial machinery. Organisations commonly utilise Life Cycle Assessment (LCA) to pinpoint instances of energy inefficiency and devise conservation-focused approaches. [6] However, LCAs demand a substantial amount of data since they require the inclusion of all inputs and outputs related to the environment across every step of supply chains and throughout the entire life cycle of a product or service. Therefore, the establishment of a comprehensive national LCA database is essential for advancing more comprehensive and scientifically grounded approaches to address sustainability challenges at the national level.

Carbon pricing is a policy mechanism aimed at reducing greenhouse gas emissions by assigning a cost to carbon emissions. It can be implemented through carbon taxes or cap-and-trade systems. Carbon taxes impose a direct fee on carbon emissions, while cap-and-trade systems set a cap on emissions and allow trading of emission permits. The idea is to incentivize companies and individuals to reduce their carbon emissions by making it financially advantageous to do so. This mechanism is crucial in mitigating climate change and transitioning to a low-carbon economy. However, currently, India does not levy an explicit carbon price. In 2021, fuel excise taxes, functioning as an indirect method of carbon pricing, accounted for 54.7% of greenhouse gas (GHG) emissions, maintaining the same level as in 2018. Conversely, fossil fuel subsidies, which remained at 2.5% of GHG emissions in 2021 as they were in 2018, worked in opposition to the advancements made in reducing emissions.”[7]

ESG sustainability reports are documents produced by companies and organisations to communicate their performance and commitment to environmental, social, and governance factors. ESG factors cover a wide range of issues, including environmental impact, and social ESG reporting is essential for transparency, accountability, and assessing a company’s sustainability and ethical practices. It is increasingly important in today’s business world as investors and consumers prioritise socially responsible and sustainable investments and products.

Obstacles and Requisites for Incorporating Green Externalities in India

India is currently positioned as the fifth most susceptible country to the repercussions of climate change, potentially endangering 2.5% to 4.5% of its GDP annually. To address this vulnerability, India has committed to reducing the carbon intensity of its GDP by 33-35% by 2030 compared to its 2005 levels. Nevertheless, achieving this ambitious target requires a substantial investment of $2.5 trillion between 2016 and 2030, as highlighted in a report by the Ministry of Environment, Forest and Climate Change (MoEFCC) in 2015.

Despite the urgency of the situation, there remains a significant shortfall in climate-related investments, stemming from both public and private sources. A forthcoming study conducted by the Climate Policy Initiative (CPI) indicates that India is currently mobilising less than a quarter of the necessary investment to meet this crucial target, as reported in 2020. [8] This includes regulatory changes, data infrastructure enhancement, and capacity building for businesses and government agencies. A robust framework for valuing environmental externalities is crucial for accurate accounting. Stakeholders in this transition include governments, businesses, environmental organisations, and accounting bodies. Governmental responsibility entails enacting policies to incentivise green practices. Businesses need to invest in sustainability initiatives and report their environmental impacts accurately. Environmental organisations can provide expertise and advocacy while accounting bodies must adapt standards to include green externalities. However, the process of such assessment in India faces several deficiencies which include but are not limited to its exclusive application to project-specific issues, and its focus on data presentation over analysis.

To enhance the process, accounting and assessment must aim to encompass private sector projects influenced by economic policy changes. Specific criteria for evaluating environmental impacts must be tailored to each project and its local environmental conditions. Furthermore, public participation, beginning early in project development is crucial, necessitating informal channels and financial support for affected communities. Associated departments must meticulously review projects, recording decisions publicly along with post-project monitoring. In India, the potential exists to implement these improvements with existing scientific resources. [9]

In-store

The research article has attempted to delve into the crucial importance of implementing Green Externalities Accounting, highlighting its pivotal role in reshaping modern economies towards sustainability. It underscores stakeholders’ need to prioritise transparency throughout their operations and be held responsible for the repercussions thereof. Often, minor externalities represent a significant grey area where communities are enduring global environmental impacts that are often overlooked or insufficiently quantified, even when occurring in plain sight. Until we take responsibility for our actions and incorporate them into our accounting practices, we cannot effectively assess or mitigate the consequences these actions have on communities, whether they are directly or indirectly connected to us. Beyond accounting, there will arise a need to assess climate-induced fiscal risks, and changes in the structure of the economy. Now is the moment for action. Connect with Carbon Mandal today to lead your organisation into this essential accounting revolution. Take a bold step with us now to shape a future that’s truly sustainable.

List of References

  1. 20-2-01E global climate risk index 2020 – Germanwatch. (n.d.). https://www.germanwatch.org/sites/germanwatch.org/files/20-2-01e%20Global%20Climate%20Risk%20Index%202020_14.pdf
  2. Adoption of IFRS in India: Benefits, challenges, and measures. (n.d.-b). https://www.ijsi.in/wp-content/uploads/2020/12/18.02.012.20190402.pdf
  3. Gandhi, F.V. (2018, May 23). Natural capital in the 21st century. The Hindu
    https://www.thehindu.com/opinion/op-ed/natural-capital-in-the-21st-century/article23971804.ece
  4. UNEP. Governing Council (19th sess.: 1997: Nairobi). (1997). United Nations Environment Programme:: report of the Governing Council on the work of its 19th session, 27 January- 7 February 1997, 3-4 April 1997. United Nations Digital Library System. 
    https://digitallibrary.un.org/record/243368?ln=en
  5. Muralikrishna, I.V., & Manickam, V.(2017). Life cycle assessment. In Elsevier eBooks (pp. 57-75). https://doi.org/10.1016/b978-0-12-811989-1.00005-1
  6. Rahman, Md. M., & Islam, M.E. (2023). The Impact of Green Accounting on Environmental Performance: Mediating Effects of Energy Efficiency.
    https://doi.org/10.21203/rs.3.rs-2604713/v1
  7. Pricing greenhouse gas emissions: Turning climate targets into … – OECD. (n.d.-d).
    https://www.oecd.org/tax/tax-policy/pricing-greenhouse-gas-emissions-turning-climate-targets-into-climate-action.htm
  8. Department for Energy Security and Net Zero. (2019, July 2). Accelerating green finance: Green Finance Taskforce Report. GOV.UK.
    https://www.gov.uk/government/publications/accelerating-green-finance-green-finance-taskforce-report
  9. Evaluation of the environmental impact assessment procedure in India. (n.d.-c). https://www.tandfonline.com/doi/pdf/10.1080/07349165.1994.9725851
Sustainability Reporting

ESG Reporting – Not an Option but a Necessity for a Sustainable Future

by with No Comment SustainabilitySustainability Reporting

Exploring the Rise and Relevance of ESG Reporting in India

Investors perceived Covid-19 as the century’s first “sustainability” crisis, resulting in a surge in global ESG investing. According to an EY report, 90% of international investors consider a company’s ESG performance, and 86% prioritise corporate decarbonisation [3]. Due to the significant risks and opportunities associated with ESG issues, companies, investors, and regulators are becoming increasingly interested in ESG reporting. A partner of Omnivore, Mr.Roy explains, “An ESG system is essentially a toolkit to help predict what can potentially go wrong for the environmental and social externalities of a business. These predictions help tremendously with safeguarding business models against risks that are avoidable when approached in the right way” [1]. The Principles for Responsible Investments (PRI) were released by the United Nations in 2006 and established an ESG Reporting Guideline for incorporating ESG factors into business strategy and policy with 2,000 signatories, it is widely regarded as the official reference point for ESG frameworks [4]. 

Aside from identifying and managing environmental and social risks, ESG reporting can build trust and transparency with investors, and attract sustainable investors. Whitney Sweeney, the investment director of sustainability at Schroders states, “In 2021 alone, there were more than 225 new or revised policy initiatives established globally with an ESG focus – the highest number ever recorded and more than double any previous year and expect a continued high level of activity into 2023”[5]. 
With a multi-trillion dollar pool of ESG-driven capital available globally, Indian companies are fast adopting the ESG approach into their overall business models. They recognize their responsibilities go beyond monetary returns to create positive social and environmental impacts as well [3]. This article will look into the rise and associated relevance of ESG Reporting in Indian businesses.

Rise of ESG Reporting In India

One would be amazed to know that there exists a possibility, in which the Indian economy can mobilise $1 trillion by 2030 towards top ESG priorities, particularly for financing the climate transition [6]. As ESG reporting becomes increasingly relevant, Indian corporations are being pressed to disclose their ESG performance. Although, similar to the global trend, there was a surge in awareness and ESG compliance after the Covid-19 pandemic, guidelines were present prior in India to encourage ESG Investments. “Ministry of Corporate Affairs” (MCA) published the “Voluntary Guidelines” on “Corporate Social Responsibility” (CSR), which in 2011 became the “National Voluntary Guidelines” (NVG) on “Social, Environmental & Economic Responsibilities of Business”. There were nine principles in the NVG that represented the “Long-Term Sustainable Value” of Indian companies [8].

The Securities and Exchange Board of India (SEBI) developed a system in 2017 that would allow businesses to voluntarily adopt integrated reporting, which would provide stakeholders with all necessary financial and non-financial information and ensure open communication about the company’s strategy, governance, and performance [8]. In the year 2020, under its Business Responsibility and Sustainability Reporting (BRSR) initiative, the SEBI made ESG disclosures mandatory for the top listed 1000 companies, previously 100 companies under Business Responsibility Report (BRR). This was done so as to increase transparency and encourage companies to adopt sustainable practices [2]. It was through this initiative that BRSR reporting came to be in India. 
Corporate Social Responsibility (CSR) is mandated by the Indian government for companies with a net worth of 500 crore rupees, a turnover of 1000 crore rupees, or a net profit of 5000 crore rupees. At least 2% of these companies’ net profits should be spent on CSR endeavours. ESG profiles should also be disclosed in order to attract capital from global ESG investors and financiers [3]. The Bombay Stock Exchange (BSE) published the Guidance Document on ESG Disclosures in 2018, which acts as a guideline for voluntary ESG reporting. It listed 33 specific issues and metrics on which companies should focus when disclosing their ESG information to investors [8]. The above-mentioned ESG reporting guidelines and government initiatives were set to increase the rate of ESG compliance and thus ESG investments in the country.

Relevance of ESG Reporting for Indian Businesses

At the United Nations Climate Change Conference in Glasgow last year, Prime Minister Narendra Modi set India’s net-zero emission target for 2070, establishing a business case for net-zero emissions [9]. As evident in the term, ESG reporting makes a direct positive impact on environmental issues, employee safety and well-being and governance and policies. With the increased risk of climate change, the relevance of ESG reporting has increased manifold, in regards to Indian companies. Investing in ESG practices will boost India’s growth, reduce environmental risks and reduce its capital raising costs. 

Increased capital and improved risk management are the highlight benefits that companies can achieve by prioritising ESG. For instance, it is more likely that companies with strong environmental practices can access capital from socially responsible investors, as well as face fewer penalties for environmental violations [2]. If Indian companies ignore developing strong ESG frameworks, they can lose INR 7,13,800 crore due to climate-related risks within the coming next five years. In order to attract investors, businesses need to demonstrate climate resilience and aim to eliminate emissions [3]. 
ESG reporting also includes companies in the chemicals, refining, and cement industries. They would have to operate ethically, use available technology to be effective and reduce emissions, and effluent treatment, not discharge untreated waste into the soil, water, or air, and also care for their minority shareholders and the broader community [7].

Next Steps in ESG Reporting 

In terms of environmental and social risks, climate change will be significant for Indian companies as India is among one of the most vulnerable countries that will have to deal with the consequences of the same. Indian businesses, more or less, do not have a choice but to consider ESG factors in their business strategy and risk assessment and thereby start ESG reporting. For successful ESG reporting and investments, expert guidance and education are necessary. Investors should work with investment advisors to identify their ESG and financial preferences when recommending ESG products.

If you are interested in developing ESG reporting at your firm and contributing towards a sustainable future, look no further! Connect with us to gain invaluable insights on how to carry out ESG reporting that would best suit your business and be relevant in today’s evolving market and economy. Our experts can guide you on ESG reporting guidelines, BRSR reporting and innovative strategies enabling your business to thrive in the long run.

List of References  

  1. Shanthi, S. (2023, February 17). ESG investing gains momentum in India. https://www.entrepreneur.com/en-in/news-and-trends/esg-investing-gains-momentum-in-india/445949#:~:text=%22This%20is%20a%206x%20increase,climate%20tech%20investments%20in%20India. Accessed April 17, 2023
  2. The rise of ESG investing in India: What it means for corporations. (2023, February 27). https://www.vaishlaw.com/the-rise-of-esg-investing-in-india-what-it-means-for-corporations/. Accessed April 17, 2023
  3. Lin, B. (2023, January 31). India transforms its ESG landscape to be future-ready. https://timesofindia.indiatimes.com/blogs/voices/india-transforms-its-esg-landscape-to-be-future-ready/. Accessed April 19, 2023
  4. What is ESG Investing? https://www.adecesg.com/resources/faq/what-is-esg-investing/#:~:text=ESG%20Investing%20. Accessed April 19, 2023
  5. Hicks, C. (2023, January 10). ESG investing trends for 2023 | investing | U.S. news. https://money.usnews.com/investing/investing-101/articles/esg-investing-trends. Accessed April 19, 2023
  6. India can attract $1 trillion in ESG Investment: Stanchart. (2022, September 27). https://www.thehindubusinessline.com/markets/india-can-attract-1-trillion-in-esg-investment-stanchart/article65942249.ece. Accessed April 20, 2023
  7. Rise of responsible investing. (2022, April 25). https://economictimes.indiatimes.com/wealth/invest/rise-of-responsible-investing/articleshow/91068701.cms?from=mdr. Accessed April 20, 2023
  8. The importance of “ESG” and its Application in India – LEXFORTI. https://lexforti.com/legal-news/wp-content/uploads/2021/04/The-Importance-of-ESG-and-its-application-in-India.pdf. Accessed April 20, 2023
  9. Tikoo, R. (2022, May 07). How Indian businesses can grow sustainably with ESG approach. https://planet.outlookindia.com/news/how-indian-businesses-can-grow-sustainably-with-esg-approach-news-414652. Accessed April 20, 2023