The Security Exchange Board of India has decided to defer the Environmental, Social, and Governance (ESG) disclosure deadline for value chain partners of listed companies by one year until FY26. This will give a relaxation period for the businesses to comply with the Business Responsibility and Sustainability Reporting (BRSR) requirements ensuring balancing the ease of doing business.
The changes mandate ESG reporting to remain voluntary instead of the current “comply-and-explain” approach. The market regulator has decided to reduce the scope of value chain to cover the top upstream and downstream partners of a listed entity, individually comprising 2 percent or more of the listed entity’s purchases and sales (by value), respectively.
“These revisions balance regulatory compliance with operational feasibility, addressing practical business challenges,” said Akshaya Bhansali, Partner – Mindspright Legal.
In May, Sebi proposed adding a requirement for listed companies to disclose information about their participation in a ‘Green Credit Program’ within their Business Responsibility and Sustainability Reports (BRSR).
This program was intended to allow companies and their suppliers to earn credits by planting trees on barren or damaged land, including areas surrounding rivers. “The inclusion of Green Credit disclosures under BRSR principles underscores a commitment to environmental responsibility while replacing “assurance” with “assessment or assurance” in SEBI (LODR) Regulations, 2015 enhances credibility through third-party assessments without imposing rigid requirements,” Akshaya added.
The major objective for the relaxation seems to be ease of doing business through an efficacious compliance methodology and environment. The important pillars of this approach stand upon the enforcement time, reducing the scope of applicability in the value chain partners, replacement of the ‘comply-and-explain’ requirement, and the option to choose assessment instead of assurance. “This allows for better preparedness, ensuring adequate systems are in place, and incentivizes conformity,” said Tarinee Sudan, Partner, DMD Advocates.
“What is yet to be seen is whether a third-party assessment undertaken according to yet-to-be-prescribed standards will be easier on listed entities,” Tarinee added.
This development aligns with the duality of efficiency which has been ensured by enhancing ESG disclosures while also ensuring the readiness of businesses in the compliance environment. “The phased implementation and inclusion of third-party assessments strike a balance between promoting transparency and providing flexibility to adapt to global sustainability standards,” said Abhishek Bansal, Founding Partner, Acumen Juris.
However, this decision is criticized for being voluntary and diluting the enforceability of the compliance policies especially ESG in India. “BRSR Core assurance and Value Chain reporting – two pillars of ESG disclosure – have been pulled out and laid flat,” said Bose Varghese, Senior Director-ESG, Cyril Amarchand Mangaldas.
“Value chain reporting has been made ‘voluntary’, taking it out of regulator’s hands,” Bose added.
The objective of the reasonable assurance is to provide insights into the company’s processes, controls, and general oversight associated with the collation of ESG information. “At a time when we need ESG data assurance more than ever, the regulator chose to dilute its world-leading mandate of ‘reasonable assurance’ of ESG data into an option between a so far unheard-of ‘assessment’ and ‘assurance’,” Bose highlighted.
There has been skepticism about voluntary disclosure considering the same leading to limited disclosure which is somewhat related dilution of the ESG mandate. “While these measures simplify compliance, they also raise pertinent challenges. Limiting disclosures to a fraction of the value chain could dilute the comprehensiveness of ESG assessments, potentially leaving critical environmental and social impacts unaccounted for,” said Kunal Sharma, Partner, Singhania & Co.
Shryeshth R. Sharma, Partner, SKV Law Offices highlights that this approach to assessment reduces the level of data accuracy responsibility for listed companies. “Given that India’s ESG disclosure framework is still in its nascent stages, this reduced threshold may promote increased voluntary disclosures by listed entities willing to showcase their proactive steps towards sustainable measures in their businesses,” he added.
The voluntary disclosure though criticized will lead to the availability of data in the public domain. “Such a move may also improve transparency in reporting and expand the availability of data, apart from laying the groundwork for future policymaking on ESG standards and reporting, tailored to the needs of the emerging Indian market,” Shryeshth noted.
This development is against the backdrop of the ESG developments in the policy-making on the national as well as international stage. The disclosure regime is significant for transparency, informed reporting, and availability of information in the public domain. The relaxation shall be evaluated before the enforceability of the same considering the voluntary disclosure being in line with the ease of doing business; or limited disclosure resulting in the dilution of the objective.
