Environmental, Social and Governance

(ESG) Compliance

PNM ENVIRO-SAFE SOLUTIONS PVT. LIMITED

 Overview:

History 
The concept arose in 2001, following the launch of the "FTSE4Good Index
Series," with the goal of encouraging UK pension funds to consider social,
ethical, or environmental (SSE) issues.
In 2002, they implemented environmental management criteria, followed
by human rights criteria in 2003 and supply chain labor standards in 2005.
As a founding signatory, the FTSE4Good then introduced the United Nations
Principles for Responsible Investment (PRI) in 2006.
The 2006 PRI report, composed of the Freshfield Report and Who Cares
Wins, cited first of all ESG issues. ESG issues. For the first time, ESG
criteria had to be incorporated in companies' financial assessments. The
sustainable investment was a priority of this effort.
 ESG Criteria:
 ESG – Environmental
 Environmental criteria include: renewable energy use by a company, its waste
management programme, how the company handles the potential problems of air
or water pollution resulting from its operations, problems of deforestation (where
appropriate) and the attitude and actions of the company in relation to climatic
changes issues.

 ESG – Social
 Social criteria cover a wide variety of potential problems. There are many
different social aspects of ESG, but they are essentially social. One of the main
connections for a business is the relationship of the company with its employees,
from the point of view of many socially responsible investors. This is a brief
overview of only some of the problems that can be addressed when considering
how a company handles its social relationships:
 ESG Criteria:

 Is employee pay reasonable, if not generous, when compared to comparable jobs

or positions in the industry? What types of retirement plans are available to
employees? Does the company contribute to the retirement plans of its
employees?
 What benefits or perks are provided to employees in addition to their basic wages
or salary? With ESG-conscious investors, it can make a big difference in your
company's evaluation if you do things like provide a free, very lavish buffet lunch
for all employees every Friday – or provide other types of benefits that aren't
exactly common at all workplaces, like an on-site fitness centre.
 Policies in the field of diversity, inclusion and prevention of sexual harassment
are also common factors.
 ESG Criteria:

 ESG – Governance
 The management of a firm in the top-level offices is essentially an issue of ESG
governance. How well do the management and executive boards look at different
stakeholders - employees, shareholders and clients – for the benefit of the company?
Does the enterprise return to its location in the community?
 Core elements of good corporate governance are often regarded as financial and
accounting transparency and full and honest financial reporting. Board members who
act in a real fiduciary relationship with stockholders and are attentive to prevent any
conflict of interest with this obligation are also of importance. Are members of the
board and managers of companies a diverse and inclusive group?
 Management compensation has been a key concern for many ESG investors who do
not tend, for example, to favour multi-million dollar bonuses for management while
for all other employees the company imposes salary freezes. Is additional
compensation to managers appropriately bound to increase the long-term value,
viability and profitability of the company?
ESG Issues
Strong and Weak ESG Proposition
Why ESG

•Environmental destruction and societal imbalances, not only harm

corporations, but also all living creatures, including people. Climate
change, global warming, resulting sea levels rising as well as droughts and
floods commonly influence investors by disrupting economic activities and
supply chains as well as adversely affecting human capital. It is a vicious
cycle; damage to the environment leads to global warming and in turn to
further damage to the environment. It is easy to notice the extent of
adverse effects on the environment.
 Why ESG

• 3 billion animals in Australian bush fires have been destroyed.

Changing weather patterns have caused floods, drought, and water
level decreases. Erratic weather has ravaged the crop cycle, eventually
affecting the food supply, jeopardizing everyone's life. Therefore ESG
cannot just be considered in conferences, research studies, and brilliant
annual reports as three alphabets that are worthy of discussion in the
English language.

• If the human race is to survive and thrive, planet Earth must be

preserved in its natural state. ESG must be ingrained in the DNA of
corporations and businesses all over the world for this to happen,
especially if the goal is to sustain business in the long run. Businesses
should adopt only practices that are environmentally friendly, socially
responsible, and adhere to high governance standards.
 Why ESG

• In order for ESG to be more than just a piece of literature or a

decorative accent, it must be evaluated on a regular basis. For such an
evaluation to be effective, an evaluation framework along with
benchmarks for three factors – environmental, social, and governance
– must be established.

• Life and safety are currently being disrupted all over the world as a
result of COVID-19. so, Health and safety are important from an ESG
perspective.
What is an ESG Framework?
 What is an ESG Framework?

•ESG frameworks provide logic to examine different ESG sub-categories, give

them the weight to determine a percentile of ESG compliance for an entity
based on their relevance and importance. The ESG rating for this entity is also
measured using this percentile.

•The Global Reporting Initiative (GRI) framework, for example, is one of the
most widely used ESG frameworks. It is a set of standards responsible for
environmental, social, economic, and governance conduct that covers a wide
range of topics. The GRI framework is used by 73 percent of the world's 250
largest companies to report on sustainability.
 Importance of ESG Framework

 ESG frameworks assist businesses in making a positive impact on the world.

Furthermore, reporting on ESG has been shown to have additional benefits for the
organization. As an example:

 Strong ESG policies can help businesses save money on energy, water, and waste
while also driving more strategic resource allocation.
 Consumers are increasing their pressure on businesses to be more socially and
environmentally responsible.

 ESG is becoming more important to investors as a standard component of the

investment process.
Challenges When Adopting ESG
Frameworks
1. Various Methodologies and Scoring Systems
•ESG frameworks all follow a different approach, which lead to numerous
scoring systems and data interpretations. If you decide to use just one, it is
crucial to determine the impact of every metric of your business and your
objectives.
•Notes could vary significantly among frameworks, thus, losing the value
of their insight, as if we compared a baseball team's performance to a
volleyball team.
2. Lack of Harmonization
•The harmonized standards of ESG rating frameworks are clearly lacking,
which may make it more difficult to operate on a global scale. Are special
reporting requirements in a country where you operate attached to ESG?
•To understand fully how ESG reporting can lead to problems, you must
understand that if you decide to report, you are liable for your business.
Even voluntary disclosures will be examined, questioned, or legally
repercussion by becoming public.
 Number of ESG Frameworks

 Some popular ESG Frameworks include:

 CDP
 Climate Disclosure Standards Board (CDSB)
 Global Reporting Initiative (GRI)
 Science Based Targets initiative (SBTi)
 Sustainability Accounting Standards Board (SASB)
 Task Force on Climate-related Financial Disclosures (TCFD)
 UN Principles for Responsible Investment (PRI)
 World Economic Forum (WEF) Stakeholder Capitalism Metrics
 ESG Rating

 ESG ratings seek to assess a company's exposure to ESG risks, as well as how
effectively those risks are managed.
 Unlike frameworks, which recommend what to report on and how to report it,
ESG ratings assign a specific score to a company based on its ESG performance.
 The ESG information would generally be used by investors, institutional
institutions, etc, for investment decisions by means of ESG ratings provided by
the ESG rating agencies. The evaluation and measurement is often the basis for
informal and shareholder proposal involvement of investors in ESG-related issues
with companies. Given their impact and dependence on the environment and
society, ESG factors can provide valuable insights into current and future
environmental and social risks and opportunities for corporations. These ESG
problems, in turn, could have an impact on the profits and returns on investments
directly or indirectly.

ESG Rating
 What is ESG Reporting

 An ESG is a report on environmental, social, and governance (ESG)

effects published by a company or organization. It enables the company to
make the risks and opportunities it faces more transparent. It is a
communication tool to convince skeptical observers that the actions of the
company are honest.
 What is an ESG Disclosure?

 The ESG Disclosure provides guidance to assist companies in navigating

the choices associated with ESG reporting, such as:
 Multiple stakeholders' ESG information needs;
 Multiple reporting provisions ; 
 Internalobjectives for reporting; External objectives for reporting (e.g.,
measuring impact, compliance, etc.);
 Concerns about reporting “volume and clutter” obscuring important
information.
The audience for ESG disclosures
ESG Process

 Three process steps (assess, decide, document) and six essential questions make
up the ESG disclosure judgment process. The process phases and key questions
provide a straightforward, practical method for increasing confidence in
externally reported ESG data. The following are the main concerns:
ESG Process

  Why report ESG information? 

 2. For whom should ESG information be reported? 
 3. Where should ESG information be reported? 
 4. What ESG information should be reported? 
 5. How should ESG information be prepared and presented? 
 6. How much ESG information should be reported?
 ESG Process

  The process steps are: 

1. Assess options neutrally, objectively, and in accordance with a list of criteria to identify information which:
 Supports reporting goals and purposes 
 Has business value 
 Meets the needs of the primary intended audience(s) 
 Is supportable 
 Can be clearly communicated

2. Decide on the basis of management and experts' evaluations, assumptions, opinions, and subjective assessments (if appropriate).
3. Document the process, the decision, and any uncertainties or sensitivities concerning the judgment.
 Importance of ESG Reporting

1. Increases the Transparency of Corporations

It expands corporate disclosure beyond traditional financial metrics and increases corporate
transparency on environmental and social metrics. Sustainability reporting enables
stakeholders to assess the company's performance in a balanced and understandable manner,
facilitating corporate accountability, as promulgated by one of the principles of the Code of
Corporate Governance.
2. Enhances Risk Management 
Sustainability reports allow publicly traded companies to investigate emerging areas of risk
and identify opportunities that would otherwise go unnoticed by other analytical and system-
based approaches. A sustainable risk management approach provides useful information to
management in order to identify emerging issues and develop adequate solutions to protect
the company's reputation and increase shareholder value.
 Sustainability Reporting Frameworks

 The Global Reporting Initiative (GRI)

 The Global Reporting Initiative (GRI) is an independent worldwide
organization whose framework is extensively utilized by corporations and
stakeholders to analyze and disclose their influence on sustainability
concerns such as climate change, human rights, governance, and social
well-being4. Under universal and specialized requirements, the standards
provide for qualitative and quantitative information disclosures. The
universal standards are looking for data on general management
characteristics, whereas the specific standards allow for reporting based on
business operations.
 For more information Click Here
 Sustainability Reporting Frameworks

 The Sustainability Accounting Standards Board (SASB)

In 2018 SASB released ESG standards to provide details and implementation
of the underlying financial metrics. The SASB ESG framework is best
suited to assess financial performance on a basis of an entity's ESG
practices.
For more information Click Here

 The International Integrated Reporting Council (IIRC) 

The "Integrated reporting Framework" is a group of international leaders
with mission. In a concise and similar format, the Framework offers
material information on the strategy, governance, performance and outlook
of an organization, an essential change in corporate reporting.
For more information Click Here
 Sustainability Reporting Frameworks

 CDP (formerly the Carbon Disclosure Project) 

It was created in 2000 in London and operates as a worldwide, non-profit
organization. CDP seeks from some of the world's major listing enterprises
standardized information on climate change, water and forestry via yearly
questionnaires delivered on behalf of institutional investors endorsing them as
'CDP' signatories.
For more information Click Here
 The United Nations Global Compact (UNGC) 
It's a strategic policy initiative for companies who want to connect their operations
and strategies with 10 internationally acknowledged values in the areas of human
rights, labor, the environment, and anti-corruption. It is made up of over 13,000
organizations in 80 local networks all around the world. In an annual
Communication on Success, business participants are expected to publicly report
on their progress.
For more information Click Here
ESG Key Performance Indicators

We believe that certain ESG Key Performance Indicators should be the focal
point of ESG reporting.
 Regulation

 EU law requires large companies to communicate certain data on their

social and environmental management challenges and how they operate.
EU Directive 2014/95/EU also called the Non-financial Reporting
Directive (NFRD), recognizes that the disclosure of non-financial
information is essential in order to manage change towards a sustainable
global economy combining long-term profitable with social justice and
environmental protection. The Directive amends accounting Directive
2013/34/EU to the extent necessary to ensure that the company's activity
develops, performs, and takes place and has its effect on, at a minimum,
environmental, social and workers' issues, respect of human rights, anti-
corruption issues and its activities.
 Regulation

 In order to help companies communicate environmental and social

information, the EU has issued guidelines and published guidelines
on the reporting of climate information. Furthermore, the EU has
initiated a public consultation on the NFRD review.
 The 2017 OECD report compiles (voluntary and mandatory) ESG
reporting requirements worldwide by institutional investors and
through company disclosure. The report notes that the reporting
requirement is usually voluntary ("observe or explain") and that the
methods or metrics that should be used are not prescriptive.
 Indian Legislation

 The Indian legislative framework has attempted to cover the various aspects of
ESG in a fragmented manner.

 The Board's report, for example, must disclose energy conservation, absorption of
technology, etc. The aspects should be covered in detail – the company must
communicate actions taken or impacts on energy conservation, actions taken to
use alternative energy sources, investment of capital in energy conservation
facilities, efforts to absorb technology, etc. Furthermore, a director has a fiduciary
duty to the community as well as to the environment.

 CSR activities include different socio-economic activities which are required in

the annual report separately. Nevertheless, the closest requirement is the reporting
of business responsibility (BRR), for which only the ESG perspective has been
mandated and discussed in the next lesson.
 Business Responsibility Report (BRR)

 The first step in Indian promotion of non-financial reporting in India can be

described as a compulsory BRR or Business Responsibility Report. The initiative
was one of the answers to India's commitment to the UN Business and Human
Rights Guiding Principles and sustainable development goals.
 The BRR is based on 9 principles in accordance with the 'Social, Ecological and
Business Economic Responsibilities National Voluntary Guidelines.‘
 BRR 9 Principles-

1) Businesses should conduct and govern themselves with ethics,

transparency and accountability;

2) Businesses should provide goods and services that are safe and contribute
to sustainability throughout their life cycle;

3) Businesses should promote the well- being of all the employees;

4) Businesses should respect the interests of and be responsive towards all

stakeholders, especially those who are disadvantaged, vulnerable and
marginalized;
 BRR 9 Principles-

5) Businesses should respect and promote human right;

6) Businesses should respect, protect and make efforts to restore the

environment;

7) Businesses when engaged in influencing public and regulatory policy,

should do so in a responsible manner;

8) Businesses should support inclusive growth and equitable

development; and

9) Businesses should engage with and provide value to their customers

and consumers in a responsible manner.
 BRR 9 Principles-

 The BRR is published by  Ministry of Corporate Affairs (MCA). The

guidelines expect companies to develop an improved understanding of the
transformation process which enhances their accountability. The National
Voluntary Guidelines (NVG) was further revised and the MCA developed
the National Guidelines for Responsible Business Conduct (NGRBC). The
guidelines provided for the enterprises to-
 conducting and governing in an ethical, transparent and accountable way
with integrity,
 provide goods and services in a manner that is sustainable and safe,
 respect and promote the well-being of all employees, including those in
their value chains,
 BRR 9 Principles-

 respect the interests of and be responsive to all their stakeholders,

 respect and promote human rights,
 respect and make efforts to protect and restore the environment,
 when engaging in influencing public and regulatory policy, should
do so in a manner that is responsible and transparent,
 promote inclusive growth and equitable development, and
 engage with and provide value to their consumers in a responsible
manner.
CORELATION BETWEEN ESG &
UNGP 17 ELEMENT S
 The development in the BRR framework is depicted
below-

On March 25, 2021, SEBI decided to replace the existing Business

Responsibility Report ("BRR"), for the purpose of reporting on a
voluntary basis for FY 2021-22 and on a mandatory basis for FY2022-
23 for the top 1,000 listed entities (by market capitalisation).
For detailed Information On BRR Click Here
BRSR | Summary of Disclosures and Principles
BRSR | Summary of Disclosures and Principles
 Survey-

 This survey report is published by EY on "How will ESG

performance shape your future?"
 Below is the detail of Survey-
 1. Today, 72% of investors surveyed claimed to conduct a
structured, methodological assessment of non-financial disclosure –
a major jump from the 32% who reported using a structured
approach in 2018. 
 The vast majority of investors usually say that they carry out a
structured and formal evaluation of ESG information.
Survey-
The five most significant challenges to the
effectiveness and utility of ESG reporting.-
 THANK YOU
&
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