Indian firms have difficulty adopting ESG frameworks specific to their industry.
While India is catching up with developed countries when it comes to ESG disclosures, many companies are facing certain challenges in meeting the norms specified by SEBI under the Business Responsibility and Sustainability Report (BRSR) disclosure format.
While SEBI has mandated the top 1,000 listed Indian entities by market capitalisation to disclose their ESG risks and responsibilities as well their approach in mitigating the same the BRSR, many are struggling to comply.
Shruti Sharma, Assistant Professor and Consultant for Business Sustainability and Strategy, TERI, SAS, said, “Most of the companies are not designed with ESG integrated into their core strategic vision. It is practiced as compliance or an obligatory requirement.”
Supply chain disclosures
A key challenge being faced by companies are the norms related to supply chain disclosures. “If India must do its business globally it has to integrate ESG in the supply chain. However, there are a number of complexities associated with ESG disclosures for supply chain. In India, a number of supply chain partners are small, unlisted firms. It is difficult for such companies to track and report on a large number of ESG metrics. This is due to lack of awareness, readiness, and financial strength of these MSME (Micro, Small and Medium Enterprises),” Sharma added.
A survey by Deloitte India revealed that only 27 per cent of Indian organisations feel adequately equipped to meet their ESG strategy and compliance requirements, while a mere 15 per cent believe their suppliers are prepared to comply with their organisations’ ESG mandates.
Does BRSR prevent greenwashing?
Another concern that arises is the greenwashing among companies to get a higher ESG score. For example, valuation guru and Professor of Finance at the Stern School of Business at New York University, Aswath Damodaran, recently wrote in a blog post that the Adani Group learned to play the ESG game well, creating an entire ESG universe to underpin its companies, and exploiting the green bond market, presumably for its green energy business.
Inderjeet Singh, Partner, Deloitte said, “The BRSR itself has been a well-crafted document, providing enough opportunities to the participating 1,000 companies in making responsible disclosures. Reasonable assurance of BRSR Core will result in the application of accounting principles such as ISAE 3000 which will ensure the review of data by an accredited agency/statutory auditor. This should reduce the chances of greenwashing to a large extent.”
Does the BRSR have a ‘One Size Fits All’ approach?
Indian firms have difficulty adopting ESG frameworks specific to their industry. The list of ESG parameters currently do not provide a comprehensive and accurate idea of the ESG scores in differing industries. “SEBI has not issued the detailed list of KPIs for BRSR Core (around 49 indicators) yet. A fair analysis will be possible once the list is made available, yet a common yardstick approach may present some degree of challenge. For example, product recall policy is important in a B2C business which may not be of great relevance in a B2B setup as such requirements are covered at length in the purchase orders itself,” said Singh, adding that while companies are ready to augment their competency, there is lack of talent and availability of technical competency in the market.
An ESG scorecard released by Crisil in 2022 showed that the performance of companies on the environmental parameter (‘E’) was weaker compared to social (‘S’) and governance (‘G’). In India, only one in five companies reported their Scope 11 and Scope 2 GHG emissions. The disclosure of Scope 3 emissions was even worse. 63 out of 586 companies published this data.
Future approach towards ESG
“Data collection and disclosure is the principal challenge. Also, how their disclosures will be interpreted by competition and their downstream value-chain partners is another challenge. ESG is the new yardstick for retaining the “preferred supplier” position. This is very clearly visible in B2B play. Companies need to take up capacity-building initiatives across their facilities and consider digital solutions to improve data collection and reporting,” said Singh.
(The write is interning with businessline’s Mumbai bureau)Read More
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Panaji: Goa State Pollution Control Board (GSPCB) signed two MoUs on Saturday at the closing of the 1st International Environment and Sustainability Summit Goa (IESSG) 2023. The MoUs will help industries in Goa get green ratings.The first MoU was signed for CII GreenCo rating, which is a voluntary rating system promoted by CII and is a first-of-its-kind system. GSPCB chairman Mahesh Patil said that the rating holistically evaluates how green a company is and suggests the way forward in pursuing environmental excellence.
“The rating guidelines cover energy, water, renewable energy, greenhouse gas mitigation, waste and material management, green supply chain, product stewardship, life-cycle assessment and innovation,” said Patil.
The second MoU was signed by the pollution control board with CII IGBC or Indian Green Building Council of the CII.
“The objective of this MoU is to promote as well as encourage voluntary adoption of IGBC ratings by industries in Goa,” said Patil. “The implementation of IGBC ratings will help industries in the faster adoption of best practices, efficient use of natural resources, reduction in waste and pollution and reduction in carbon emissions.” He added: “The initiative will help more industries become world-class in environmental management.”
This MoU, he said, will be a stepping stone to creating a green industry landscape and voluntarily raising the bar beyond compliance in environment management.
“As a result, it will facilitate Goa’s march towards a green economy and its emergence as a low-carbon state in the country,” Patil said.
A third MoU was signed with Teri School of Advanced Studies (Teri SAS), Delhi, to help GSPCB employees undertake research studies.
“The MoU was signed with the objective of fostering collaboration between the two organisations to promote academic-led strengthening of science-policy-practice interface, endeavouring to increase their cooperation in research and education,” said Patil. “The probable thematic areas are bio resources and biotechnology, business sustainability, energy and environment, national resources management, policy studies, water science and governance as well as legal studies.”
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