SEBI Board meet: Industry insiders welcome easing of ESG compliance, phased rollout for value chain

The other changes announced by SEBI in this regard include making ESG disclosures for value chain voluntary instead of the present requirement of "comply-and-explain".

Industry insiders have welcomed the market regulator's move to give more time for companies to make their environmental, social and governance (ESG) disclosures and to allow a phased implementation of ESG disclosures of the value chain.

Industry players believe that this relaxation will help foster the right attitude to ESG reporting, of seeing it as a strategic advantage in a global marketplace rather than seeing it as a mechanical exercise.

On December 18, after a meeting of its board of members, the Securities and Exchange Board of India (SEBI) announced ease-of-doing business measures for listed entities regarding their ESG disclosures made in the Business Responsibility and Sustainability Report (BRSR).

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One of the measures was extending the deadline for ESG disclosures with regard to companies' value chains and the “assessment or assurance” of this by a year. As the press statement from SEBI said, "ESG disclosures for value chain shall apply from FY 2025-26 (as against the current requirement of FY 2024- 25) and 'assessment or assurance' thereof shall be applicable from FY 2026-27 (as against the current requirement of FY 2025-26)".

Smitha Shetty, regional director, APAC at supply chain consultancy Achilles Information Ltd, said, "This deferment also allows organisations to perceive ESG reporting as a strategic differentiator rather than merely a compliance task."

While noting that this gives some breathing room, Shetty underlined, "It highlights the urgency for companies to begin their data collection processes promptly, as this is a lengthy endeavour that involves multiple stakeholders. By starting on the right foot, organisations can establish accurate baselines that will enable them to report effectively when the time comes."

The deferment also gives micro, small and medium enterprises (MSMEs) an opportunity to start their ESG reporting process, and improve their market preparedness and their competitiveness, she added.

Dipankar Ghosh, partner and leader, sustainability and ESG at professional services firm BDO India, said that the regulator rightly placed the emphasis on ESG reporting when a framework was developed for value-chain reporting. He added that the partial deferment was what was required.

Ghosh said, "The recent announcement for partial deferment of select requirements appropriately recognises the right balance needed between regulatory demands and business readiness. Availability of value chain information is a recognised challenge all over the world, and this initiative of SEBI grants businesses the necessary time to streamline their preparedness, at the same time allowing a window to encourage their value chain partners to embrace ESG in the right spirit, beyond mere compliance.”

Other changes

The regulator also said that "assurance" will be substituted with “assessment or assurance” in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, regarding BRSR. The press statement said that "assessment” will be a third-party assessment undertaken as per standards to be developed by the Industry Standards Forum in consultation with SEBI.

According to Achilles' Shetty, this collaborative approach is "a vital step in standardising sustainability reporting".

She said, "This will not only enhance efficiency but also ensure a consistent, credible approach to assessing ESG performance, strengthening trust among stakeholders."

The other changes announced by SEBI in this regard include making ESG disclosures for the value chain voluntary instead of the present requirement of "comply-and-explain" and reducing the scope of the value chain to cover the top upstream and downstream partners of a listed entity. That is, the value-chain definition will only include vendors and clients who individually comprise 2 percent or more of the listed entity's purchases and sales (by value), respectively, while providing that the listed entity may limit disclosure of value chain to cover 75 percent of its purchases and sales (by value), respectively.