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Understanding Environmental, Social, and Governance (ESG) Regulations in Corporate India: 2024

As the corporate landscape in India increasingly prioritizes sustainability, the significance of Environmental, Social, and Governance (ESG) regulations has surged.

How focus on ESG can shape business of the future
Source: EY

These regulations encompass diverse standards mandated by the government, aiming to incentivize companies to adopt sustainable practices. ESG regulations address environmental and climate risks, encompassing factors such as carbon footprints, water pollution, deforestation, and biodiversity conservation. Additionally, they focus on social aspects like labor practices, stakeholder management, employee welfare, community development initiatives, and diversity and inclusion policies. Governance, including leadership transparency, board diversity, ethical decision-making, and anti-corruption measures, also forms a crucial part of ESG frameworks.

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Legislative Framework for ESG in India

In India, ESG regulations are dispersed across various legislations, such as the Companies Act 2013 and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Companies Act mandates certain companies to form committees overseeing Corporate Social Responsibility (CSR) activities. Furthermore, Section 149 of the Act stipulates the necessity of female directors in certain classes of companies. Additionally, SEBI’s introduction of the Business Responsibility Report (BRR) in 2012, later expanded into the Business Responsibility and Sustainability Reporting (BRSR) in 2021, underscores the regulatory evolution to assess ESG factors among top listed companies.

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SEBI’s Role in ESG Disclosure

India among the world's first to standardise ESG disclosures; new SEBI measures to improve transparency: ESGDS' Ramnath Iyer - The Economic Times
Source: The Economic Times

SEBI’s amendments to regulation 34(2) of the LODR regulations in 2023 introduced the BRSR framework, compelling the top 1,000 listed entities to disclose ESG policies and practices. This move aims to enhance transparency and accountability in corporate governance, aligning with global sustainability goals and principles. Notable companies like Tata Consultancy Services (TCS) and Asian Paints have already embraced ESG policies, showcasing initiatives such as eco-friendly production materials, energy efficiency measures, waste reduction strategies, and supply chain sustainability efforts. These companies have also invested in employee training and development programs, community engagement initiatives, and renewable energy projects.

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Challenges and the Path Forward

Despite initial strides, ESG regulations in India are nascent, with only a fraction of companies covered under existing mandates. Moving forward, collaborative efforts between the Ministry of Corporate Affairs (MCA) and SEBI are crucial to aligning Indian regulations with global trends and standards. Expanded adoption of ESG practices not only fosters value creation within companies but also attracts investments, underlining the potential for sustainable growth in corporate India.

Moreover, the implementation of ESG frameworks requires capacity-building initiatives, stakeholder engagement, and robust monitoring and enforcement mechanisms. Companies need to integrate ESG considerations into their business strategies, risk management processes, and performance evaluation frameworks to drive long-term sustainable development.

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Furthermore, enhancing ESG disclosure standards, improving data quality and comparability, and promoting industry-specific ESG benchmarks and best practices can facilitate informed decision-making by investors, regulators, and other stakeholders. Embracing ESG principles can also enhance corporate reputation, mitigate operational risks, foster innovation, and drive competitive advantage in an increasingly interconnected and resource-constrained world.

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