India Tightens ESG Reporting, Audit Rules For Top Companies
India’s top companies will have to step up ESG reporting and show credibility of such disclosures as a slew of regulations take effect this financial year.
(Bloomberg) -- India’s top companies will have to step up ESG reporting and show credibility of such disclosures as a slew of regulations take effect.
The biggest 1,000 firms by market value have to start publishing a Business Responsibility and Sustainability Report from the year ended March 2023. The Securities and Exchange Board of India will also require a ‘reasonable’ audit for a select set of indicators — known as core BRSR — for 150 of the largest on the list effective in the current financial year, according to a circular Wednesday.
The move makes Sebi the first among global regulators to impose tighter norms. Globally, most ESG information is subject to a limited assurance, which means assurance of no negative observations, while ‘reasonable’ assurance is more comprehensive and robust, said Sumit Seth, partner at Price Waterhouse & Co.
The audit requirement will expand to all 1,000 companies over four years and, gradually, will also cover vendors and partners, Sebi said.
The additional compliance by companies will improve credibility of disclosures and mitigate greenwashing risks, Seth said. A PWC survey last year showed that 75% of investors would have more confidence in corporate sustainability reporting with reasonable assurance, which is the same level as a financial audit.
World over, the focus on environment, social and governance practices has run into political and activist backlash accusing businesses and investors of too much talk and too little action. That’s put the onus on financial regulators to speed up frameworks for standardized reporting and scrutiny of ESG parameters.
The ESG regulatory ecosystem in India is getting built quickly. India’s accounting institute earlier this year issued a globally-adapted sustainability assurance standard to guide auditors. For now, Sebi has given companies discretion to pick any ESG audit service provider as long as it poses no conflict of interest.
Several international assurance providers have India offices, said Prabodha Acharya, chief sustainability officer at Mumbai-based JSW Group. He added that many large Indian companies including his already follow global ESG reporting standards and limited third party assurance.
The challenge now lies in standardizing ESG ratings. No two rating companies work on the same criteria and there is a trend now that even ESG rating providers are being rated, Acharya said.
Sebi recently prescribed who can provide ratings in India, but harmonization remains a hurdle across international financial markets.
Read More:
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HSBC Says Rising ‘Anti-ESG’ Sentiment in US Is Impacting Funds
(Updates with comment in fifth paragraph. A previous version corrected year in second paragraph)
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