Research paper
Enhancing ESG Transparency: A Review of
SEBI's Regulatory Framework and its
Implications for Corporate Governance
________________________________________________________________
Name : Mehul Sharma
(2182048)
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Index
Sr No. Chapters Page No.
Abstract
Chapter - I INTRODUCTION
Chapter – II Importance of ESG Transparency
Chapter –
SEBI’s Regulatory Framework on ESG Transparency
III
Chapter –
Case Studies (TCS, HDFC & Infosys)
IV
Chapter –
V
Chapter –
VI
Chapter -
VII
Reference
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Abstract
Environmental, Social, and Governance (ESG) factors have emerged as key considerations for
corporate governance worldwide, reflecting a shift toward sustainable business practices that
prioritize long-term stakeholder value over short-term profit maximisation. In India, the Securities
and Exchange Board of India (SEBI) has been at the forefront of regulatory efforts to enhance
transparency in ESG reporting through the introduction of various mandates aimed at listed
companies. One of the most significant steps in this regard has been the introduction of the
“Business Responsibility and Sustainability Report (BRSR)” which replaces the previous Business
Responsibility Report (BRR), making ESG disclosures more comprehensive, measurable, and
aligned with global standards.
The BRSR, mandated by SEBI under its “Listing Obligations and Disclosure Requirements
(LODR) Regulations”, focuses on providing detailed ESG information, including metrics on
environmental impact, social responsibility, and governance practices. This is part of SEBI's wider
effort to promote corporate accountability and help investors assess non-financial risks and
opportunities. The move to mandatory ESG reporting for the top 1,000 listed entities from the
financial year 2022-23 onward is a significant step toward creating a culture of transparency, where
businesses are not only judged by their financial performance but also their contributions to
sustainable development.
Under SEBI's regulatory framework, the BRSR requires disclosures on several key parameters,
such as :
• Environmental: Carbon emissions, resource usage (water, energy), waste management, and
biodiversity impacts.
• Social: Employee welfare, community engagement, diversity and inclusion, and human rights
policies.
• Governance: Board composition, ethical practices, anti-corruption measures, and risk
management.
This framework aligns with SEBI’s “Circular SEBI/HO/CFD/CMD2/P/CIR/2021/562”, which
outlines the specific content and format for the BRSR, ensuring consistency and comparability in
ESG disclosures across companies. The initiative supports India's broader goals under international
frameworks such as the Paris Agreement and the United Nations Sustainable Development Goals
(SDGs), by holding corporations accountable for their environmental and social footprints.
SEBI’s push for enhanced ESG transparency presents several implications for corporate governance
in India. First, it encourages greater board oversight and integration of ESG factors into core
business strategies, thereby fostering a culture of sustainability at the top levels of management. It
also empowers investors to make informed decisions based on standardised non-financial data, thus
promoting responsible investing.
However, SEBI's ESG framework is not without its challenges. Many companies, especially small
and medium-sized enterprises (SMEs), may find it difficult to comply with the rigorous reporting
standards due to limited resources or expertise in ESG-related areas. Moreover, ensuring the
accuracy and verifiability of disclosed data remains a key concern, as does balancing transparency
with competitive confidentiality. Despite these challenges, SEBI’s proactive stance on ESG
transparency marks a pivotal moment in India’s corporate governance landscape, as it aligns the
interests of businesses, investors, and society toward sustainable and inclusive growth.
This paper delves into SEBI's regulatory framework for ESG transparency, examining its impact on
corporate governance practices, challenges in implementation, and its contribution to fostering
sustainable business practices in India.
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Introduction
In recent years, the importance of Environmental, Social, and Governance (ESG) factors has taken
centre stage in corporate governance and business strategy worldwide. Stakeholders are
increasingly demanding accountability and transparency regarding corporate sustainability
practices, prompting regulatory bodies to implement frameworks that guide companies in
integrating these critical elements into their operations.
In India, the Securities and Exchange Board of India (SEBI) has been a pioneer in this movement,
establishing a comprehensive regulatory framework for ESG disclosures. This framework
represents a paradigm shift in how businesses approach sustainability, emphasizing the need for
responsible governance that aligns with long-term value creation.
The SEBI regulatory framework for ESG disclosures encourages companies to adopt a holistic view
of their operations, recognizing that their impact extends beyond mere financial performance. It
mandates that organizations report not only on their financial metrics but also on their
environmental impact, social responsibilities, and governance practices. This approach fosters a
culture of transparency and accountability, compelling companies to engage in responsible business
practices that benefit not only their shareholders but also the broader community and environment.
Key components of the SEBI framework include enhanced board oversight of ESG issues, which
acknowledges that diverse and well-informed boards are better equipped to navigate the
complexities of sustainability challenges. The framework also emphasizes the importance of
transparency in reporting, requiring companies to disclose their ESG performance and initiatives in
a manner that is accessible and understandable to stakeholders. By integrating ESG considerations
into their corporate strategies, companies can enhance their resilience against market fluctuations
and evolving consumer expectations.
Moreover, the SEBI framework places a strong emphasis on diversity and inclusion within
corporate boards, recognizing that a variety of perspectives can lead to more innovative and
effective solutions to ESG-related challenges. This focus on diversity not only enriches decision-
making processes but also reflects a commitment to social equity and representation.
In conclusion, the SEBI regulatory framework for ESG disclosures marks a significant
advancement in corporate governance in India. By mandating transparency and accountability in
sustainability practices, it encourages companies to embrace a responsible business ethos that
prioritizes long-term value creation over short-term gains. As businesses adapt to these evolving
requirements, they stand to benefit from improved stakeholder relationships, enhanced reputations,
and a greater ability to manage risks associated with ESG factors. This shift towards a more
sustainable and responsible business model is not just a regulatory obligation; it is a strategic
imperative that will shape the future of corporate governance in India and beyond
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1. [Link]
2. [Link]
esg-disclosures-by-listed-firms-reduces-800-parameters-to-under-50/99096338
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Importance of ESG Transparency
ESG transparency refers to how openly a company shares information about its environmental
impact, social responsibilities, and governance practices. Being transparent in these areas is
important for several reasons:
1. Investor Confidence: Investors want to know they're putting their money into companies that
care about sustainability. The Global Sustainable Investment Alliance (GSIA) 2020 report
showed that sustainable investment assets hit $35.3 trillion globally. This highlights how much
investors are looking for companies that comply with ESG standards.
2. Risk Management: Companies that focus on ESG factors are better at handling risks related to
environmental regulations, social issues, and governance problems. According to a study by
Eccles et al. (2014), companies with strong sustainability policies have better risk management
and organisational processes compared to those without such policies.
3. Reputation and Brand Value: Good ESG practices can boost a company’s reputation and
brand loyalty, which can lead to better financial performance. Porter & Kramer (2011) found
that addressing ESG issues can help reduce costs, grow revenue, and improve risk management,
ultimately benefiting the company's bottom line.
4. Regulatory Compliance: With increasing regulations on sustainability, companies that
disclose their ESG practices are better prepared to comply with new laws. This proactive
approach can help avoid legal troubles and fines.
5. Employee Satisfaction and Retention: Today's workforce values working for socially
responsible companies. Clear ESG practices can boost employee morale, help attract top talent,
and reduce turnover by creating a sense of pride and purpose within the organization.
6. Access to Capital: Companies that are transparent about their ESG practices often find it
easier to secure funding. Investors and financial institutions are increasingly considering ESG
factors when making lending and investment decisions, which can improve a company’s credit
rating and lower the cost of capital.
7. Innovation and Long-Term Strategy: Focusing on ESG factors encourages companies to
think long-term and innovate. By addressing environmental and social issues, companies can
find new market opportunities and develop sustainable products and services.
8. Customer Loyalty and Market Positioning: Consumers are becoming more aware of the
ethical practices of the companies they support. Transparency in ESG practices can enhance
customer loyalty and set a company apart from its competitors.
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1. [Link]
2. [Link] Files/SSRN-id1964011_6791edac-7daa-4603-
[Link]
3. [Link]
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SEBI’s Regulatory framework for ESG Transparency
The integration of Environmental, Social, and Governance (ESG) factors into corporate governance
has become increasingly significant in recent years. In response to the growing demand for
transparency and accountability in sustainability practices, regulatory bodies worldwide have begun
implementing frameworks to guide companies. In India, the Securities and Exchange Board of India
(SEBI) has taken a pioneering role in this movement by establishing a comprehensive regulatory
framework for ESG disclosures. This chapter will explore SEBI's regulatory framework, its key
components, and its implications for corporate governance.
The SEBI Regulatory Framework for ESG Disclosures
The SEBI regulatory framework, known as the Business Responsibility and Sustainability Report
(BRSR), represents a significant shift in corporate governance in India. It encourages companies to
enhance their board oversight of ESG issues and promotes diversity within corporate boards. This
framework mandates transparency and accountability in sustainability practices, requiring
companies to integrate ESG factors into their overall corporate strategy. The integration aims to
foster sustainable business models that prioritize long-term value creation over short-term profits.
Key Aspects of the SEBI Framework
1. Board Oversight: The SEBI framework emphasizes the need for greater board involvement in
ESG matters. Diverse boards are recognized as better equipped to navigate complex
sustainability challenges. By encouraging comprehensive oversight, SEBI aims to ensure that
ESG considerations are deeply embedded in corporate governance.
2. Transparency in Reporting: Transparency is a cornerstone of the SEBI framework.
Companies are required to disclose their ESG performance and initiatives, fostering a culture of
accountability and responsible business practices. This includes detailed reporting on
environmental impact, social responsibilities, and governance practices, making the information
accessible and understandable to all stakeholders.
3. Integration into Corporate Strategy: The framework promotes the incorporation of ESG
factors into the overall business strategy. This holistic approach enhances a company's
resilience against market fluctuations and evolving consumer expectations. By aligning ESG
considerations with long-term business goals, companies can achieve sustainable growth and
competitive advantage.
4. Focus on Diversity and Inclusion: SEBI places a strong emphasis on diversity and inclusion
within corporate boards. The framework acknowledges that a variety of perspectives can lead to
more innovative and effective solutions to ESG-related challenges. This focus on diversity not
only enriches decision-making processes but also reflects a commitment to social equity and
representation.
Implications for Corporate Governance
The SEBI regulatory framework for ESG disclosures marks a significant advancement in corporate
governance in India. By mandating transparency and accountability in sustainability practices, it
encourages companies to embrace a responsible business ethos. This shift is expected to have
several implications for corporate governance:
a) Enhanced Stakeholder Relationships: Transparent ESG practices build trust and strengthen
relationships with stakeholders, including investors, employees, customers, and the broader
community.
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b) Improved Risk Management: Integrating ESG factors into corporate strategy enhances a
company's ability to manage risks associated with environmental regulations, social unrest, and
governance failures.
c) Increased Resilience: Companies that prioritize ESG considerations are better positioned to
adapt to changing market dynamics and consumer expectations.
d) Long-Term Value Creation: By focusing on sustainable practices, companies can create long-
term value for their shareholders while contributing positively to society and the environment.
CASE STUDY
Case Study 1: Tata Consultancy Services (TCS)
Tata Consultancy Services (TCS) stands as a prime example of a company that has fully embraced
ESG transparency. By consistently reporting its sustainability initiatives through the BRSR
framework, TCS has showcased its commitment to environmental stewardship and social
responsibility. The company's focus on reducing its carbon footprint and promoting diversity within
its workforce has not only enhanced its reputation but also attracted socially conscious investors.
TCS's efforts in integrating ESG considerations into its business strategy highlight the positive
impact of transparency on corporate governance and investor relations.
• [Link]
Sustainability_a_case_study_of_Tata_Consultancy_Services_Ltd
• [Link]
Case Study 2: Infosys
Infosys has also made significant strides in ESG reporting, aligning its practices with SEBI's
guidelines. The company has implemented a variety of sustainability initiatives, including
renewable energy projects and community engagement programs. By transparently disclosing its
ESG performance, Infosys has strengthened its corporate governance framework and demonstrated
its commitment to sustainability. These efforts have helped Infosys build trust with stakeholders,
enhance its reputation, and attract investors who prioritize ESG factors in their investment
decisions.
• [Link]
Case Study 3: HDFC Bank
HDFC Bank has embraced the ESG framework set forth by SEBI, focusing on responsible banking
practices and community engagement. The bank has implemented several initiatives aimed at
promoting financial inclusion and supporting sustainable development projects. By integrating ESG
considerations into its business model, HDFC Bank has improved its risk management strategies
and enhanced its reputation among investors and customers alike. The bank's commitment to ESG
transparency has fostered a culture of accountability and responsible business practices, positioning
it as a leader in sustainable banking.
• [Link]
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Conclusion
In today's fast-changing business world, the integration of Environmental, Social, and Governance
(ESG) factors into corporate governance has become increasingly important. The Securities and
Exchange Board of India (SEBI) has played a crucial role in this transition by introducing a
comprehensive regulatory framework designed to enhance ESG transparency among listed
companies. This paper explored SEBI's initiatives and their far-reaching implications for corporate
governance in India.
A major insight from this review is the pivotal role of ESG transparency in attracting investor
confidence. The Global Sustainable Investment Alliance (2020) report highlighted the rising
demand for ESG-compliant companies, with sustainable investment assets reaching $35.3 trillion
globally. Companies focusing on ESG factors are better equipped to handle risks related to
environmental regulations, social unrest, and governance issues, while also improving their
reputation and brand value.
The SEBI framework, particularly the Business Responsibility and Sustainability Report (BRSR)
and specific ESG disclosure requirements, mandates companies to take a comprehensive approach
to their operations. This approach fosters transparency and accountability, compelling firms to
integrate ESG considerations into their overall corporate strategy. Such integration is crucial for
promoting sustainable business models that prioritize long-term value creation over short-term
profits.
The case studies of Tata Consultancy Services (TCS), Infosys, and HDFC Bank demonstrate the
benefits of embracing ESG transparency. These companies have not only enhanced their reputation
and attracted socially conscious investors but have also strengthened their corporate governance
frameworks and built trust with stakeholders. Their proactive approach to ESG reporting has
positioned them as leaders in their respective industries, showing the potential for other companies
to follow their lead.
Moreover, SEBI's emphasis on board oversight and diversity, transparency in reporting, and the
integration of ESG into corporate strategy has significant implications for corporate governance.
Enhanced accountability, improved stakeholder engagement, diverse and inclusive boards, and
resilient business models are key outcomes of this regulatory framework. These elements are
essential for fostering innovative solutions to ESG-related challenges and driving sustainable
growth.
As companies continue to adapt to these evolving requirements, they will benefit from improved
stakeholder relationships, enhanced reputations, and a greater ability to manage ESG-related risks.
This shift towards a sustainable and responsible business model is not just a regulatory requirement
but a strategic necessity that will shape the future of corporate governance in India and beyond.
