The rise of the ESG regulations

Source- The post is based on the article “The rise of the ESG regulations” published in “The Hindu” on 13th March 2023.

Syllabus: GS3- Indian economy

Relevance– Issues related to corporates

News– Regulators and corporations around the world have embraced the idea that businesses should be measured by their environmental impact, commitment to social issues and the soundness of their corporate governance.

What is the main driver behind this development?

It is the realisation that environmental, social and governance (ESG) considerations need to be included by investors in a company’s risk profile in order to accurately assess the enterprise.

How ESG differs from CSR?

Corporate Social Responsibility policy in India mandates corporations to engage in initiatives that contribute to the welfare of society. This mandate has been codified into law.

The list of qualifying CSR activities is intentionally broad. It ranges from supporting the protection of historically important sites to promoting safe drinking water.

ESG regulations, on the other hand,differ in process and impact. The U.K. Modern Slavery Act, for example, requires companies to publish the efforts they have taken to identify and analyse the risks of human trafficking, child labour and debt bondage.

How is ESG evolving in India?

India has long had a number of laws and bodies regarding environmental, social and governance issues.

It includes the Environment Protection Act of 1986, quasi­judicial organisations such as the NGT.Also, a range of labour codes and laws governing employee engagement and corporate governance practices.

New initiatives in India go further. It establishes guidelines that emphasise monitoring, quantification, and disclosure, like ESG requirements found in other parts of the world.

SEBI substantially revised the annual Business Responsibility and Sustainability Report (BRSR) required by the 1,000 largest listed companies in India.

As per SEBI, it is aligned with evolving global standards. It places considerable emphasis on quantifiable metrics to allow companies to engage meaningfully with stakeholders and to enhance investor decision making.

Disclosures range from greenhouse gas emissions to the company’s gender and social diversity.

Further legislations regarding ESG are likely to come, given the increased emphasis by the Indian government on ESG issues.

It can be seen in India’s more active role in global climate forums as well as in specific policy developments.Such as the announcement in January by the Reserve Bank of India that it would be auctioning ₹80 billion in green bonds.

What are the implications for Indian companies?

Compliance with ESG regulations both originating in India and elsewhere around the world have significantly different challenges than India’s CSR regulations.

Compliance by Indian companies with the ESG regulations of the U.S., the U.K., the European Union and elsewhere will be critical.If India is to take full advantage of the growing decouplingfrom China and play a more prominent role in global supply chains.

As Indian companies look to expand their ESG risk management, thorough due diligence will play a key role.

It includes looking at company records, interviewing former employees and making discreet visits to observe operations to ensure that they are complying withinternational ESG standards.

Companies that wish to maximise their opportunities in the global economy need to embrace these new requirements and adjust them accordingly.

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