SEBI's new ESG regulations pose challenges for top firms
July 23, 2023
Top Indian companies are facing challenges due to the capital-markets regulator's new Environmental, social and governance (ESG) rules as they struggle to collate non-financial data dispersed across various internal systems, evaluate the impact of disclosing private data on sensitive governance issues, and start dealing with the complexity of capturing and auditing data from thousands of their suppliers.
On July 12, 2023, the Securities and Exchange Board of India (SEBI) released a circular with new rules to improve the reporting of ESG performance for listed companies by including audits and value chain disclosures. Under the new regulations, SEBI requires the top 1000 listed entities (by market capitalisation) to whom reporting under BRSR applies, to obtain "reasonable assurances" on all nine indicators of BRSR Core, a framework prepared by the ESG Advisory Committee based on National Guidelines of Responsible Business Guidelines. Reasonable assurance involves the application of accounting principles and conducting a more extensive audit process, similar to statutory audits.
The Ministry of Corporate Affairs and SEBI have decided to implement the initial ESG audit process gradually, starting with the top 150 companies in FY23-24, followed by the top 250 listed companies in FY24-25, the top 500 companies in FY25-26, and finally the top 1000 companies in FY26-27. In the last few days, top listed companies have reached out to consultants to identify information gaps in their ESG processes and devise workable solutions that will pass the regulators requirements and ensure compliance. Jamil Khatri, Co-founder & CEO, Uniqus Consultech said that SEBI has taken a step in the right direction but companies will encounter significant practical problems while implementing the new regulations due to the limited transition time provided.
Data Harmonization
Experts say that challenges emerge when collating data, especially for companies with operations in multiple geographies, each with different disclosure timelines and regulations. Harmonizing data, for instance, converting biofuels from litres to gallons when subsidiaries are in different countries, poses a tricky task. Inderjeet Singh, Partner, ESG, Climate Change, and Sustainability practice at Deloitte said that auditors will also have to also gear up to cater to the needs of the top 150 companies. "The time between data collection and final report submission is limited for the entire fiscal year, including data from the supply chain. One significant challenge lies in ensuring that the supply chain is aligned and prepared to meet the audit requirements," he said.
[The Economic Times]
