Sustainability and ESG have entered the mainstream; strong sustainability regulations are now in focus.
Although large corporate houses reserved dedicated budgets for CSR activities, these did not involve the entire planetary ecosystem. The Federal governments, The UN, The World Bank, and other regulators introduced tightened regulations and are handholding the countries, and top-tier companies to comply with the statuettes.
We list below the top ten compliances which gained prominence in 2023, and which we believe will play a key role in the coming years.
These compliances do not appear in any order of importance but are placed ad hoc.
1. BRSR
The Business Responsibility and Sustainability Report (BRSR) reporting requirement in India aligns with global sustainability frameworks like GRI and UNGC, aiming to improve the quality of sustainability reporting by listed
entities.
The BRSR format, introduced in May 2021, mandates the top 1000 listed entities by market capitalization to disclose ESG-related information on governance, environment, social, customer, supply chain, and human rights.
Updates: SEBI added new ESG metrics to BRSR Core disclosure requirements for Indian-listed companies in July 2023, requiring the top 1000 listed companies to file BRSR reports by FY2023.
The BRSR Core subset includes key performance indicators (KPIs) for nine ESG attributes, including job creation, business openness, and women’s wages, with intensity ratios based on revenue adjusted for PPP for global comparability.
2. Compliance emission trading mechanism (in works):
India plans to operationalize its compliance carbon market, focusing on emission allowances. According to a Bureau of Energy Efficiency document, obligated entities (companies in compliance markets) will receive Carbon Credit Certificates (CCCs) for maintaining emission intensities below targets. They must buy CCCs if they exceed them. The market will follow a one-year compliance cycle, requiring annual performance reports. The scope of emissions covers direct and indirect emissions from fuel combustion, industrial processes, electricity, and heat consumption.
The CCCs will be issued from a national registry called the Indian Carbon Market (ICM) registry, and obligated entities will need to buy and sell them through designated power exchanges.
3. GRI:
The Global Reporting Initiative (GRI) is an international standards organization that aids businesses, governments, and organizations in understanding and communicating their impacts on climate change, human rights, and
corruption.
GRI Standards consist of Universal, Sector, and Topic Standards, with Universal Standards mandatory for all disclosures. Sector Standards prioritize high-impact industries like oil and gas, coal, agriculture, aquaculture, fisheries, and mining. Mining industry sector standards were being developed, followed by financial and textile industries in 2023. Topic standards list disclosures for various material topics.
Updates: The GSSB meeting approved two new GRI Standards, the GRI Topic Standard for Biodiversity and the GRI Sector Standard for Mining, which will be published in early 2024. The standards were developed through multi-stakeholder engagement and collaboration. The new year will also see the implementation of GRI 13 for the Agriculture, Aquaculture, and Fishing Sectors and GRI 12 for the Coal Sector.
4. SBTi:
The Science Based Targets Initiative (SBTi) is a collaboration between the World Resources Institute, the World Wide Fund for Nature, and the United Nations Global Compact. It aims to define and promote best practices in emissions reduction and net-zero targets in line with climate science.
With hundreds of the world’s largest companies committed to setting targets, SBTi has recognized emissions targets of nearly 4,000 companies worldwide, aligning them with the Paris Agreement’s goals of reducing global warming to 1.5 degrees Celsius.
Updates: SBTi plans to introduce a tailored standard for financial institutions, requiring banks and asset managers to avoid financing new fossil fuel projects.
Starting January 1, 2024, SBTi will update its SME definition to include sector-specific criteria, excluding companies from certain sectors.
5. Corporate Sustainability Reporting Directive (CSRD):
The Corporate Sustainability Reporting Directive (CSRD) is the new EU legislation requiring large companies and listed SMEs to publish regular reports on their environmental and social impact activities. It expands sustainability reporting to approximately 50,000 companies across Europe, aiming to standardize non-financial data reporting.
Updates: Starting in 2024, companies with over 250 employees, annual turnover exceeding €50 million, or total assets exceeding €25 million must report under the CSRD. The European Union’s CSRD will be implemented from January 1, 2024, requiring over 50,000 European businesses to report on social and environmental risks and opportunities, and their impact on people.
6. The International Sustainability Standards Board (ISSB):
ISSB was established in November 2021 to develop IFRS Sustainability Disclosure Standards. Launched at the COP26 climate conference, the board aims to provide a global baseline of disclosure requirements for investors, companies, governments, and regulators.
Updates: In 2024, the ISSB will take over monitoring companies’ climate-related disclosures from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. CDP will align its sustainability reporting questionnaire with the new climate disclosure standard.
7. Carbon Border Adjustment Mechanism (CBAM):
The European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM) to level the playing field in the global market and mitigate carbon leakage.
CBAM ensures a fair carbon cost, fostering competitiveness and upholding the EU’s environmental goals. It targets EU importers of carbon-intensive products from sectors without similar carbon costs.
Updates: The EU Official Journal released regulations for updating the EU CBAM and the EU Emission Trading System (ETS). The transitional period will be from October 1 to December 31, 2025, with quarterly reporting requirements. The ETS II will expand to aviation and maritime sectors, and free allowances will disappear.
8. Sustainable Finance Disclosure Regulation (SFDR):
The Sustainable Finance Directive (SFDR) mandates ESG disclosure obligations for financial market participants, including pension funds, asset managers, insurance companies, banks, institutional investors, and credit institutions. The aim is to standardize ESG reporting in Europe, enabling investors to make informed choices. FMPs with over 500 employees must disclose annual PAI statements by June 30, while those with fewer than 500 employees can use the Comply or Explain principle.
9. EU Corporate Sustainability Due Diligence Directive (CSDDD):
On June 1, 2023, The European Union introduced the Corporate Sustainability Due Diligence Directive (CSDDD), requiring businesses to assess and disclose their supply chain and operations’ environmental and human rights impacts. The directive will apply to 13,000 EU-based businesses and 4,000 non-EU businesses operating in the EU, focusing on high-risk industries. Businesses with over 500 workers and €150 million annual revenue are covered, while non-EU businesses from third countries with revenue within the EU are also subject.
Updates: Inter-institutional negotiations on the CSDDD between the European Parliament, Council, and Commission can begin, with Member States having two years to implement it into national legislation.
10. The Streamlined Electricity and Carbon Reporting (SECR):
SECR is a UK regulation that mandates companies to report on their emissions and energy consumption. It aims to promote energy efficiency, reduce costs, and improve productivity while reducing carbon emissions. Companies must report under SECR, including quoted companies, large unquoted companies, and Limited Liability Partnerships.
End Note:
This is by no means an exhaustive list. The laws that may directly affect India and our companies are mentioned below. This includes the effect on the rapidly growing MSME market, which will receive special attention this year.
Which ESG regulations will affect your company?