The Securities and Exchange Board of India (SEBI), recently, approved the regulatory framework for ESG (Environmental, Social and Governance) disclosures, ratings and investing.
Disclosures
SEBI has introduced BRSR Core that is applicable to top 150 companies by market capitalisation. It has reduced the number of key performance indicators across the value chain to report on to around 50 and requires these items to be reasonably assured (audited).
A glide path will be prescribed for applicability of BRSR Core, beginning with the top 150 listed entities by market capitalisation from FY2023-24, which will be gradually extended to the top 1,000 listed entities by FY2026-27.
The requirements are to be based on a comply or explain basis from FY 2024-25 for disclosures and FY 2025-26 for assurance.
Ratings
Considering that emerging markets have a different set of environmental and social challenges, Sebi said that ERPs will be required to consider India or emerging market parameters in ESG rating.
ERPs will have to offer a separate category of ESG rating — Core ESG Rating — which will be based on the assured parameters under BRSR Core. tings.
The regulatory framework for ERPs would be through the introduction of a new chapter in the SEBI credit rating regulations.
Investing
Sebi has decided to introduce a new scheme category, enabling the launch of multiple schemes on ESG-related factors. It has decided to mandate ESG schemes to invest at least 65 per cent of assets under management (AUM) in listed entities, where assurance on BRSR Core is undertaken.
There will be a mandatory third-party assurance and certification by the Board of AMCs on compliance with the objective of the ESG scheme. Sebi mandates enhanced disclosures on voting decisions with a specific focus on environmental, social and governance factors.
It Also mandates disclosure of fund manager commentary and case studies, which highlight how the ESG strategy is applied to the fund or investments.
Utkarsh Majmudar 