Partner at Kreston Rangamani and Associates LLP, Global Tax Group Regional Director, Asia Pacific
Ganesh has extensive experience of more than 30 years in providing specialist tax services, particularly to large privately owned groups, with particular strengths in the property, retail, healthcare and hospitality industries. He has supported various entities with specialist advice on tax-effective structures and restructures, cross-border transactions on account of outbound and inbound India investments, mergers, acquisitions and divestments. Ganesh has also worked with stakeholders across businesses to deliver solutions such as tax due diligence, tax consolidation and restructuring of large family businesses in the Middle East, Asia, and Singapore.
ESG legislation and reporting in India
March 8, 2023
ESG legislation and reporting in India is in the early stages of its evolution with the Securities and Exchange Board of India (SEBI) having made it mandatory, from this financial year, for the top 1000 listed companies to furnish a “business responsibility and sustainability report” as part of its annual reports. India, is one of the few countries in the world, which has a corporate social responsibility (CSR) mandate, which is applicable for companies with a net worth of over INR 5 billion or turnover of more than INR 10 billion or net profit of more than INR 50 million to spend 2% of their net profits on CSR initiatives. This makes India a major market for sustainability solutions and green finance and makes it critical to the evolution of the ESG ecosystem worldwide.
ESG ambition in India
In the Paris agreement of the United Nations Climate Change Conference in 2021, India committed to achieving net zero emissions by 2070. The multi-trillion dollar global pool of ESG-driven capital, has encouraged many Indian companies to incorporate ESG into their holistic business strategies. Many companies in India feel that ESG adoption will boost their growth and enhance their public image. Meanwhile, India’s banking sector is also focusing on sustainable development. The Reserve Bank of India by joining the Network for Greening the Financial System (NGFS) is contributing to global green finance and driving India’s financial sector towards policy formation and climatic risk resilience development. State Bank of India, which is India’s largest bank has formulated ESG-compliant lending policies for companies, pushing them to act more responsibly.
ESG legislation in India
In the next five years, if Indian companies fail to build robust ESG frameworks on priority, then they will lose a substantial amount of money due to climate-related risks. Most of the trade forums in India are conducting workshops where they advise companies in India to demonstrate climate resilience and strive to eliminate emissions to sustain operations. The following are the ways which these companies have been advised to follow so as to be ESG compliant:
A) Optimal utilization of resources – Companies are encouraged to focus on sustainable sourcing, resource allocation, optimal utilization of air, water and fuel, advanced waste management and extended producer responsibility.
B) Renewable energy solutions – There are a number of advanced power conversion and energy storage technologies which can now integrate battery devices and inverters so as to offer comprehensive energy storage and power transmission. Companies are advised to go for high-efficiency solar and wind energy generators from best-in-class manufacturers, which have high energy efficiency options.
C) Worker’s well-being – The social indicators of a company now include worker safety, worker training, human rights protection, social impact assessment, gender equality, women empowerment, employee retention and conflict management. Companies have been asked to achieve the above parameters so as to make it a quality place to work.
D) Avoid ESG washing – Companies have been advised to involve data visibility, and compliance with global disclosure standards, so as to make ESG standardisation assessment easy for global investors. Companies are also advised to address transparency issues so as to avoid accidental ESG washing.
E) Streamlining processes – The senior management of the companies has been asked to undergo training so as to play vital roles in crafting strategies, driving performance, reporting results and leading the company’s ESG transformation. Companies have been told to concentrate on sourcing and analysing data and to deploy ESG data tools to streamline processes, supply chains and customers.
The focus of all the trade and other related associations is to ensure that Indian companies integrate environmental and human health, through collaboration and transparency, so as to transform various production modalities to realize attaining net zero emissions in the future.
Meanwhile, across Asian countries the shift from voluntary ESG disclosures to mandatory disclosures is gathering steam. Apart from India, countries like China, Indonesia and Malaysia have also made it mandatory for the large listed companies in their respective countries to give mandatory ESG disclosures in their annual reports. Singapore and Japan are considering the transition from voluntary to mandatory reporting and is likely to make the change in the next financial year. Hongkong on the other hand has gone for a mixed strategy requiring mandatory ESG disclosures on specific ESG concerns, but permitting a ‘comply or explain’ approach to climate change issues.
To speak to an expert about your ESG reporting obligations in India, get in touch.