ESG stands for Environmental, Social, and Governance (ESG). It is a business review of a company’s economic, environmental and social impacts, caused by everyday business operations and activities.
ESG business review is done based on ESG criteria which are broadly classified into three major categories Environment, Social, Governance, and into their respective sub-categories. ESG criteria and ratings are getting significant traction amongst the investor community to conclude on their investment decisions. Many Asset Management Companies, Brokerage firms have also started to offer ESG portfolios for investors to invest in. ESG criteria-based investments are also referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing.
ESG criteria can greatly help investors avoid companies that might pose a greater financial risk due to their environmental or other practices and may be liable for regulatory sanctions.
ESG reporting was limited in a way through BRR (Business Responsibility Reporting) reporting and CSR (Corporate social responsibility) reporting.BRR is a report (part of the annual report) submitted to Indian stock exchanges by the top 1000 listed entities by market capitalization. In May 2020, Committee on Business Responsibility Reporting developed and recommended Business Responsibility and Sustainability Report (BRSR) be integrated with the MCA21 portal. BRSR reporting would be on a voluntary basis for FY 2021–22 and will be made mandatory from FY 2022–23. Going forward, the applicability is proposed to be extended to all companies and even LLPs in a span of 5 years starting from FY 2021-22.
BRR reporting philosophy was to make the listed company accountable towards stakeholders and also at the same time to be environmentally sustainable. Also, more than twenty-five percent of publicly listed companies around the world are now ESG measured and rated. Amidst the rush for ESG investing, Investors and regulators need better data on entities’ ESG performance to strategize ESG-based regulations and compliances.
It is ideal for SEBI/MCA to establish a data standard for ESG data reporting at the inception of ESG evolution in India. Data Standards like XBRL, SDMX have garnered immense importance in business reporting in recent years.
In today’s time when climate crisis is felt by every individual on planet Earth, it’s of crucial importance to have a robust ESG-based book-keeping, publication, regulation, reporting, rating framework in place for every country, especially in India which is eying to be an economic superpower this decade.
