Context:
SEBI Chairman Tuhin Kanta Pandey has announced a comprehensive review of India’s ESG (Environmental, Social, Governance) disclosure norms, especially those relating to supply chain reporting. The move follows industry concerns over the complexity and cost of current disclosure requirements.
Background
- Since FY23, SEBI has mandated ESG disclosures for the top 1,000 listed companies by market capitalization.
- In July 2023, SEBI asked the top 250 companies to:
- Report ESG data for 75% of their supply chain partners
- Provide third-party assurance starting FY26
- This requirement was eased in May 2024, and the deadline was extended by one year in December 2024 due to industry pushback.
Reasons for the Review
- Indian companies cited challenges with:
- Measuring and assuring ESG metrics
- Data availability and supply chain complexity
- Pandey emphasized: “If disclosures turn out to be only on paper or false, it will create more problems.”
- SEBI aims to foster capacity building to support accurate sustainability reporting.
Global Context
- India’s review mirrors global trends:
- EU proposed exemptions for small businesses from sustainability rules
- US (under Trump-era policy) showed resistance to ESG mandates
- India has a low ESG score, with Moody’s rating the country as high-risk on environmental and social fronts
Other Regulatory Areas Under Review
- Related party transactions: Rules may be fine-tuned for better proportionality
- Derivatives market: SEBI is reviewing 800+ responses on proposed changes to how open interest is measured
- Industry groups warn these could hurt liquidity and raise costs
- SEBI to adopt a principle of “optimal regulation”, not “sledgehammer” measures
What’s Next?
- The ESG review begins next month, with no timeline given on final rule changes
- Pandey has not confirmed whether reporting norms will be softened, only that they will be more calibrated
