Author(s) :

Renu Gupta, Ameeta Motwani.

Volume/Issue :

Abstract :

The paper describes the development of reporting on Environment, Social and Governance (ESG) issues in India and analyse the current situation with respect to ESG reporting by Indian Companies. This paper uses a review of academic studies on sustainability/ESG reporting practices among Indian companies as well as surveys undertaken by professional accounting and credit rating firms such as KPMG, PWC, Ernst & Young and CRISIL. While a few large Indian companies have been reporting on their ESG performance for quite some time now, many more have begun reporting in recent years as it allows them to showcase their commitment towards the sustainability agenda. The rising trend in ESG Disclosures is a result of the increasing demand from stakeholders for relevant and accurate data on the one hand and the increasing regulatory imperatives on the other. The lack of regulatory requirements so far has resulted in less attention being paid to the E and S issues as compared to the mandatory G factors. A systematic study of the developments in Sustainability/ESG reporting in the context of India specially after the recent changes in the regulatory landscape is expected to add to the knowledge on the subject. Massive environmental changes happening across the globe, technological advances and the global pandemic have brought about a noticeable change in the way stakeholders assess the resilience and sustainability of businesses. The conventional financial metrics reported by corporates are no longer perceived as tools to understand the value a company can create and the business corporates are expected by stakeholders and regulators to report about the Environmental, Social and Governance aspects of their business. This study highlights the need for understanding the large part of corporate reporting which has not yet been incorporated into the mainstream accounting and reporting knowledge and curriculum frameworks.

No. of Downloads :

177

KEYWORDS:

ESG, Indian Companies, Sustainability Reporting, Business Responsibility Report, BRSR

INTRODUCTION & OBJECTIVES:

Over the past two decades, massive environmental changes happening across the globe and technological advances have brought about a noticeable change in the way stakeholders assess the resilience and sustainability of businesses. The conventional financial metrics reported by corporates are no longer perceived as tools to understand the value a company can create. There has been a paradigm shift in Corporate Reporting over time in order to meet the information needs of the stakeholders. Over the years, it has evolved from traditional financial reporting to sustainability reporting and more recently to Integrated Reporting (Bal 2018). Today, in addition to the financial reporting, business corporates are expected by stakeholders and regulators to report about the Environmental, Social and Governance (ESG) aspects of their business. Reporting on social and environmental impacts of corporates has been called by different names such as - CSR reporting, Sustainability reporting, Non-Financial reporting, Triple Bottom Line reporting and ESG reporting signifying their main focus. For example, while CSR reporting is focused on the impact of the business on different stakeholders in society viz. consumers, employees, local community etc.; sustainability reporting is about the impacts of a company on the society and natural environment; ESG reporting includes disclosures relating to the environmental, social as well as governance issues that the firm is facing and which may affect the value of the firm. However, the terms are related and in the academic literature on the subject, these are used interchangeably with Sustainability Reporting being the most used term. The term ESG became popular after the 2004 report of Global Compact titled “Who Cares Wins” (Compact 2004). ESG reporting is more concerned with the investment community and financial decision-making - “issues which have or could have a material impact on investment value. It [the report] uses a broader definition of materiality than commonly used — one that includes longer time horizons (10 years and beyond) and intangible aspects impacting company value. Using this broader definition of materiality, aspects relating to generally accepted principles and ethical guidelines (e.g. the universal principles underlying the Global Compact) can have a material impact on investment value.” (Compact 2004: 2) These are a group of corporate performance evaluation criteria that assess a company's ability to effectively manage its environmental and social consequences as well as the strength of its governance procedures. While Financial Reporting is mandatory and there are National and International Financial Reporting Standards to guide them, reporting on ESG issues is still in its nascent stages. However, it is fast getting traction as governments of many countries including Denmark, Malaysia, China, South Africa and the Philippines require some specified companies to make ESG-related disclosures. The Corporate Sustainability Reporting Directive issued by the European Commission in April 2021, mandates that large European companies disclose how they address ESG issues. This directive is guiding legislative changes in the National laws in some of the EU countries. Other countries like Australia, Mexico and France have also started reporting issues related to climate change. In the US, the Securities and Exchange Commission (SEC) requires that companies should enhance the disclosure of ESG-related information in their public company filings. These developments have led to the growth of ESG Indices and ratings as well as standards for disclosure in the last two decades. The demand from the investors for evaluation and rating of ESG-related data by ESG ratings providers (ERPs) has also increased. Aims: This paper aims to describe the development of Business Responsibility reporting and related regulatory frameworks in India and analyse the current situation with respect to reporting of ESG factors by Indian Companies. The Main research question is “How are Indian Companies responding to the demands for reporting on ESG issues from the investors, government and other stakeholders?”

DOI:

https://doi.org/10.58426/cgi.v4.i2.2022.88-104