Jainendra Jain & Associates
Chartered Accountants

Legal Framework for ESG Reporting

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​There is no single law that addresses all ESG-related issues. These matters are covered by multiple laws and regulations, each pertaining to different aspects of ESG such as the environment. These laws not only lay down regulatory requirements but also entail reporting obligations to government authorities. Public reporting is not mandatory; however, the board's report, which is a public document, requires disclosure on specific matters related to energy conservation and technology absorption as per the Companies Act, 2013. Moreover, this Act and its associated regulations mandate disclosures regarding CSR activities. The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, along with the issued circulars, serve as the principal legislation for integrated ESG reporting in India and apply specifically to listed companies.

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ESG Reporting: Recent changes

i) BRSR Core: "BRSR Core consists of nine key performance indicators covering the Environmental (E), Social (S), and Governance (G) areas. Listed entities need to obtain external assurance to ensure the reliability of their reported data and to prevent greenwashing. This requirement applies to the top 150 listed entities based on market capitalization from the financial year 2023-24, and it will gradually extend to the top 1,000 listed entities by the financial year 2026-27. In addition, ESG Rating Providers must provide a separate 'Core ESG Rating' category, which will be based on the company's third-party assured or audited data."

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ii) Disclosures for value chain: The listed company must make disclosures for its value chain in its annual report, as required by the BRSR Core. The value chain includes the main partners upstream and downstream of the company, which together make up 75% of its purchases or sales by value. This requirement applies to the top 250 listed entities by market capitalization from the financial year 2024-25, and limited assurance of the above is required on a comply-or-explain basis from the financial year 2025-26.

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iii) Regulating ESG Rating Providers; Parivartan score: SEBI has introduced detailed guidelines for ESG Rating Providers and is regulating them under the SEBI (Credit Rating Agencies) Regulations, 1999. In addition to ESG Rating and Core ESG Rating, ESG Rating Providers are required to offer a transition (or "parivartan") score. This score reflects the incremental changes that a company has made in its transition story over recent years or concrete plans/targets to address the risk and opportunities involved in transitioning to more sustainable operations. This approach focuses on the company's journey towards sustainability rather than just its current profile.

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ESG Reporting – key challenges, and way forward.

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The enhanced ESG reporting requirements pose several challenges, including: 1. Lack of clarity on the scope and extent of required disclosures in certain areas. 2. Lack of qualified personnel well-versed with the reporting framework. 3. Preparedness of the value chain of listed companies for the disclosures. The current reporting regime is mainly based on SEBI's requirements for larger listed companies. In the future, factors influencing the ESG reporting regime may include evolving regulatory requirements, investor demands, and changing societal expectations.