ICAI & SEBI Spearhead Sustainable Transformation In India Inc, Set Global Precedence
In a significant move to bolster sustainability reporting, India's corporate sector is poised to witness a remarkable boost. The Securities and Exchange Board of India (SEBI) has made it mandatory for the top 1,000 listed companies to report on Business Responsibility and Sustainability. This was stated by Sanjeev Singhal, a Central Council Member of the Institute of Chartered Accountants of India (ICAI).
Singhal, further expounding on this, conveyed, "Under the newly introduced regulations, known as Phase Two, SEBI made it compulsory for the top 150 listed companies to adhere to key metrics of Business Responsibility and Sustainability Reporting (BRSR)."
The new step by the capital market regulator requires mutual fund schemes that are based on Environmental, Social, and Governance (ESG) principles to invest at least 65 per cent of their assets under management in companies that undergo reasonable assurance audits of BRSR.
“The move taken by SEBI sets an unprecedented global example, as no other country has implemented such a concrete step. Additionally, starting in 2024–25, SEBI has proposed the mandatory inclusion of ESG disclosures for value chain partners, with a focus on compliance and explanation,” Singhal stated.
Furthermore, he added that this phase will be implemented gradually over a four-year glide path, covering the period from 2023 to 2026–27. The BRSR core reporting standards will be mandatory for the top 1,000 listed companies, encompassing approximately 95 per cent of the market capitalization.
Recognising the significance of sustainability reporting, Singhal delineated that ICAI established its Sustainability Reporting Standards Board in 2020. "During the voluntary phase of BRSR, the board focused on three key pillars: providing technical guidance, capacity building, and launching sustainability awards to encourage corporations to adopt best practises. One primary initiative was the implementation of assurance standards for auditing sustainability information," said the central council member of ICAI.
Singhal, defining the reason for the mandatory audit of sustainability information, stated that SEBI recognised the need to make the audit of sustainability information mandatory due to prevalent greenwashing practises. "To evaluate the auditable nature of sustainability information, ICAI conducted back testing on eight major companies, confirming that over 95 per cent of the information was auditable. Drawing strength from this testing, SEBI made assurance mandatory, enhancing professional capacity in the field," he added.
"To further facilitate impactful social work and alignment with sustainable development goals, ICAI collaborated with SEBI to establish the Institute of Social Auditors of India (ISAI). As a result, India now has two social stock exchanges, the National Stock Exchange and the Mumbai Stock Exchange, where social organisations can list themselves and raise capital through zero-coupon, zero-principle funds," Singhal elaborated on India's unique social stock exchanges.
He also mentioned that ISAI developed 16 social audit standards aligned with Sustainable Development Goal themes, such as eradicating hunger, reducing poverty, and preserving marine ecosystems, and that these standards enable the assessment of social enterprise impact for fundraising purposes and represent a pioneering effort globally.
Speaking on the SRM framework, Singhal conveyed, "India has also introduced the world's first Sustainability Reporting Maturity Model (SRM) framework, allowing companies to evaluate themselves based on four levels of sustainability reporting maturity. Level one signifies the initial or formative stage, level two represents a slightly higher threshold of emerging practises, level three represents an established stage, and level four represents leadership by example."
Last but not least, Singhal mentioned that, in collaboration with the United Nations Development Programme (UNDP), ICAI intends to present this research during COP28, further solidifying India's commitment to sustainability and transparent reporting.
India is also working towards developing an integrated statement that combines financial and non-financial aspects. With its comprehensive and pioneering approach, India has positioned itself at the forefront of sustainability reporting, setting an inspiring precedent for the corporate world to embrace responsible practises and contribute to a sustainable future.
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