ESG reporting witnesses increase in global variance
Apr 9, 2024
Synopsis
India has been an early adopter of corporate ESG regulations - be it mandating listed companies to spend towards corporate social responsibility or disclosing ESG parameters through the 'business responsibility and sustainability reporting', or BRSR. Since FY23, the top 1,000 listed companies in India have been disclosing over 1,600 data points pertaining to different aspects of the ESG framework as part of the BRSR.
The US Securities and Exchange Commission (SEC) last week stayed the first-of-its-kind climate disclosure rules pending judicial review and amid a political backlash. The rules, adopted a month earlier, had taken two years to pass a pared down version and required public companies to disclose extensive climate change-related information in their regulatory filings.
This development comes three months after China unveiled its ESG rules requiring companies to publish sustainability reports by 2026. In a significant move, the Supreme Court of India in a ruling released last week expanded the scope of Articles 14 and 21 to include the 'right against the adverse effects of climate change'.
From having seen a quick adoption of ESG - the umbrella term pertaining to environmental, social and governance standards - the US today faces ambivalence about its implementation due to the flak it has received from politicians, academicians and business leaders. For instance, American entrepreneur and politician Vivek Ramaswamy in his 2023 book 'Capitalist Punishment' described how leading Wall Street firms forced US companies to adopt ESG mandates while supporting human rights atrocities in China or shifting oil production to places like Russia. Companies in the US now tread a precarious path of staying committed to sustainability goals yet not found to be associated with 'ESG' that will attract criticism. This has led to the emergence of a kind of 'green hushing'.
In contrast, the European Union has been spearheading ESG initiatives with a series of regulations like the European Climate Law as part of the European Green Deal or the Carbon Border Adjustment Mechanism (CBAM), a carbon tax for imported goods or the new Corporate Sustainability Reporting Directive (CSRD) for standardising sustainability reporting. However, the European region has become a fertile ground for protestors on either side of the climate change debate. On the one hand, farmers from across Europe - Belgium, France, Germany, the Netherlands and Spain - have protested against the EU green rules that burden them with costs and bureaucracy when compared to their peers outside the EU. These protests have compelled the EU to ease some of the green rules. For instance, in February, the EU scrapped the goal to cut farming emissions from its 2040 climate roadmap. But easing of rules has not gone down well with environmentalists who have been staging protests on the governments going lenient on climate action. This is leading to climate change scepticism gaining ground.
The situation in India has evolved differently. The country has been an early adopter of corporate ESG regulations - be it mandating listed companies to spend towards corporate social responsibility or disclosing ESG parameters through the 'business responsibility and sustainability reporting', or BRSR. Since FY23, the top 1,000 listed companies in India have been disclosing over 1,600 data points pertaining to different aspects of the ESG framework as part of the BRSR. From FY24, the top 150 of these companies have to also undertake 'reasonable assurance' from auditors of certain core indicators at a time when most global regulations seek 'limited assurance'.
"In the sustainability reporting landscape, the shift in the last 2-3 years from voluntary to regulatory is a significant one as it will ensure more reliable and comparable data," said Santhosh Jayaram, global head of sustainability at HCL Technologies. "From the perspective of an Indian MNC, compliance with multiple reporting requirements will be a challenge as these requirements have differences. The bigger problem nevertheless is that the context of sustainability is not considered in case of the metric-driven approach followed by the regulations. There is a need to look at performance as a function of the impact an organisation creates in relation to local, regional, and global systems", he said.
A study in December 2022 by researchers Ion Frecautan and Andreea Nita from University of Suceava, Romania, analysing the major global ESG frameworks (such as GRI, SASB, IIRC, CDP, CDSB, CSRD, TCFD and EU Taxonomy) found that there is no consistency between different non-financial reporting frameworks in preparing the information for the stakeholders.
There are also challenges such as higher cost of compliance, difficulties understanding the combined financial and ESG information and less flexibility in preparing the reports. Having different approaches towards sustainability reporting also increases the risk of greenwashing.
[The Economic Times]
