SEBI relaxes ESG disclosure norms for listed firms, extends deadlines
On December 18, SEBI announced a series of measures toward easing the process of ESG disclosures for listed companies operating in India. The measures here relate to the Business Responsibility and Sustainability Report and include providing more time and scope for businesses to adhere to value chain ESG reporting requests.
The companies have been given extensions on their due dates to report ESG disclosures of their respective value chains by SEBI. The disclosures initially aimed to be made under the said FY 2024-25 will now be completed by FY 2025-26. The requirements regarding “assurance or assurance” accompanying these disclosures, thus, will now take place from FY 2026-27 instead of an earlier stipulated FY 2025-26.
In addition to the deadline extension, SEBI also made ESG disclosures on value chains optional, replacing the earlier requirement of “comply-and-explain.” With that, the scope and methodology of a company’s disclosures on value chains have gained flexibility in the light of their priorities, allowing it to focus on key upstream and downstream partners.
Main Announced Changes in ESG Report
The main announcements were on the following changes for ESG reporting:
Extended deadlines: ESG disclosures about value chains will be effective from FY 2025-26, one year behind the announced timeline. However, “assessment or assurance” on these disclosures will begin only from FY 2026-27, therefore businesses will get some extra time for preparation.
Voluntary Value Chain Disclosures: The disclosure obligation regarding the ESG information of the value chains is no longer mandatory but voluntary. Firms would no longer be obliged to follow or explain why they fail to disclose their value chain information.
Narrowed Scope of Value Chain: The value chain disclosures will only apply to the top upstream and downstream partners that make up 2 percent or more of a company’s total purchases and sales. Companies will further be able to limit value chain disclosures to only comprise 75 percent of their overall purchases and sales, as a result of which scope will be further limited down.
From “Assurance” to “Assessment or Assurance”: The mandate for external assurance of ESG disclosures would be substituted with “assessment or assurance.” It would be an independent evaluation prepared in line with the norms framed by the Industry Standards Forum with the collaboration of SEBI.
Benefits to companies and MSMEs:
This has been largely accepted by different players in the business line, who view such alterations as one step forward in compelling business houses toward ESG reporting more from a strategic advantage than strictly through compliance. Generally, more comprehensive deadlines give companies some considerable time to gather more accurate data to build upon more comprehensive reporting structures.
New measures have opened valuable opportunities for MSMEs to initiate their ESG reporting process, thus enhancing competitiveness and market preparedness. Now MSMEs will be able to align business operations with ESG principles, increasing the chances of attracting investors and customers who care for sustainability.
This will also be helpful in business development: it should be able to discern the level of ESG impact they have in the supply chains. Companies can focus on key partners that comprise a significant amount of their purchases and sales and direct their ESG efforts in the places they matter the most.
Support for Sustainability Reporting Frameworks
The changes in ESG disclosure requirements are part of the broader efforts of SEBI towards promoting sustainable business practices and transparency in India’s corporate sector. SEBI is allowing flexibility to companies to design and build robust ESG frameworks that are both effective and manageable by extending deadlines and shifting from mandatory assurance to voluntary assessments.
Another important step toward further standardizing ESG reporting in India is the development of assessment standards through the Industry Standards Forum. Such collaborative approach is designed to create a fair and credible framework for judging ESG performance with increased stakeholder trust built in by investors, customers, and regulators.
The new rules also reflect the fact that businesses face significant difficulties in getting adequate, relevant, and comprehensive ESG data, especially concerning their value chains. This way, SEBI is providing the companies with a cushion to make these changes gradually toward more sustainable and transparent practices.
Implications for Listed Companies
This change in the ESG disclosure requirements would have a great impact on the listed companies in India. Though the new deadline provides more time to comply with the companies, this is also a growing reminder of the importance of sustainability in business operations. Therefore, Indian companies would be compelled to adjust to the changing global business environment and to concentrate on ESG factors.
The move also signals the seriousness of the government and regulators regarding the promotion of sustainable development in India’s corporate sector. In making ESG reporting easier and phased in, SEBI is encouraging business to take sustainability as a long-term strategy rather than a burden of regulation.
Conclusion
Easing the reporting requirements for listed companies from SEBI will be an important step towards sustainable business practices in India. Extended deadlines, voluntary disclosure for value chains, and from mandatory assurance to assessment shall give the flexibility to the companies in terms of the alignment of their operations according to the global sustainability standards. In this way, both big corporations and MSMEs will benefit through a better environment that supports sustainable business growth and competitiveness in the market.
As India continues to place itself as a global leader in sustainability, these regulatory changes will provide momentum to widespread adoption of ESG principles across the corporate sector.
Source: SEBI Announcement on December 18, 2023