The Road Ahead For ESG Disclosures in India - Notes From Meeting With IFRS Foundation Chair
To achieve a global baseline that is inclusive and equitable and aligns with the diverse needs of the world’s regions and populations, there is an urgent need to factor these perspectives in the global ESG disclosures and frameworks, shares Swati Tewari
India’s sustainability journey began with the launch of National Voluntary Guidelines (NVGs) for CSR reporting in 20091. In 2012, top 100 listed entities were mandated to file the Business Responsibility Report (BRR) as part of their annual report. The policy landscape for ESG disclosures has evolved since then and in 2021, it culminated into the launch of mandatory ESG disclosures through the Business Responsibility and Sustainability Reporting (BRSR) for the top 1000 listed entities. Last year SEBI mandated BRSR Core KPIs disclosures for top 250 listed companies & their value chain partners from FY 24-252.
While the ESG (Environmental, Social, and Governance) disclosures ecosystem is evolving rapidly in India, reporting on multiple standards can be overwhelming for the Indian Industry. Globally acceptable standards can form the backbone of the ESG ecosystem and accelerate the implementation of a sustainable economy. It can also form a common basis for reporting for overseas subsidiaries and act as a basis for devising investment strategies in the ESG capital market. However, due to multiplicity of standards, disclosures and metrics, this has remained a distant dream.
The International Financial Reporting Standards (IFRS) Foundation was established to develop enforceable and globally accepted accounting and sustainability disclosure standards. The standards are developed by two standard-setting boards, the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). Last year, ISSB released IFRS S1 (Sustainability disclosures) and S2 (Climate disclosures), with an objective to create a common language for sustainability disclosures3. However, these standards are also viewed as adding to the existing multiplicity of standards. While several countries have adopted the ISSB standards, India is yet take any steps to adopt them due to this ubiquitous factor.
During an interaction between CII Members and Mr Erkki Liikanen, Chair, IFRS Foundation, held on June 18, 2024 in New Delhi, discussions were held on challenges around the current ESG disclosure landscape in India. Some of the issues raised by representatives of Indian organizations are given below.
Interoperability of Standards
CII Members put forth that reporting on any additional disclosure such as IFRS S1 and S2 can be burdensome for the Indian Industry. Members agreed that there is a need for standard setters, industry organizations and multilateral initiatives to play a pivotal role in the harmonization of standards, terminologies, reporting philosophies, and practices across the globe.
Prioritization of Global South
It was highlighted during the meeting that global ESG disclosures has missed integrating the global south perspective. Organizations in Global South align their resources towards social development, including eradication of hunger and poverty, access to clean water and sanitation and social upliftment. Most of this work gets classified under CSR.
In fact, 70 per cent of the Global South workforce is informal, with unique labour policies and practices. It will be important to ensure that standards, KPIs, thresholds and ratings consider applicability, relevance, and prioritization of the Global South.
70% of the Global South workforce is informal, with unique labour policies and practices
Absence of KPIs Related to Gig Economy
Majority of the workforce belonging to digital and e-commerce organizations in India such as Zomato or Flipkart are contractual gig workers and vendors, from the MSME sector. It was highlighted during the meeting that global ESG disclosure frameworks are unable to integrate these factors due to lack of relevant KPIs or misaligned weights.
Differentiated Rating Parameters
A very pertinent suggestion captured during the discussion was to ensure that the disclosure and rating parameters are calibrated and designed to be applicable to the economic maturity of a country and the size of a company through their distribution into mandatory and voluntary topics.
The Next Few Steps
- To achieve a global baseline that is inclusive and equitable and aligns with the diverse needs of the world’s regions and populations, there is an urgent need to factor these perspectives in the global ESG disclosures and frameworks
- There is a need for establishing interoperability between BRSR and IFRS S1, S2 to reduce the burden of compliance and reporting on Indian organizations. CII has done a broad-level mapping between IFRS S1, S2 standards and BRSR, establishing an 18 per cent overlap. Going forward, CII proposes to do this mapping along with IFRS and highlight the sectoral specifications
- At various international platforms, such as World Economic Forum and COP, CII has presented Indian Industry’s views and suggestions and highlighted the distinct absence of global south in these standards. The ESG in Business Action Council of B20 India in 2023, identified some of these challenges in much detail and proposed key recommendations on the same. CII proposes setting up a CII-IFRS Forum for continuous engagement with Indian organizations on implementation of existing IFRS S1 and S2 standards and to provide inputs on upcoming standards, to integrate the global south perspective
- In May this year, CII partnered with the training institute of SEBI-National Institute of Securities Market (NISM) to launch a programme for BRSR practitioners. Through the CII-IFRS Joint Forum, capacity development programmes can be planned specifically around IFRS standards
CESD, as part of CII, works with around 9,000 members from the private as well as public sectors, including SMEs and MNCs, and with over 365,000 enterprises from 294 national and regional sectoral industry bodies, to help shape India’s sustainability reporting framework through continuous proactive engagements with Industry Members as well as regulatory bodies on various aspects of corporate reporting & building trust.
Through research, industry-wide surveys, and acting as a platform for consensus-building, CESD continues to work towards bringing in more ease, clarity, transparency and accountability in the BRSR reporting framework. Through the ESG Intelligence & Analytics services, CESD supports and empowers organizations in their ESG journey. The CII Eco Edge Certification Program integrates sustainability in the value chain partners of organizations.
References
- https://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf
- https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assurance-and-esg-disclosures-for-value-chain_73854.html
- https://www.ifrs.org/content/dam/ifrs/about-us/who-we-are/who-we-are-english-2018-final.pdf
- https://integratedreporting.ifrs.org/wp-content/uploads/2024/05/IFRS-IR-GettingStarted-051524.pdf
To know more, visit the website or write to us on cesdengage@cii.in
By
Swati Tewari
Senior Counsellor
CII
