What is ESG?

ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate a company’s performance on sustainability and ethical issues. In India, the ESG reporting landscape has evolved significantly, driven by regulatory mandates and growing investor awareness.

• Environmental: Focuses on a company’s impact on the planet.
• Social: Examines how a company manages relationships with employees, suppliers, customers, and communities.
• Governance: Reviews the company’s internal practices, transparency, and accountability.

ESG: Key Performance Indicators (KPIs) and Metrics

ESG Key Performance Indicators (KPIs) and Metrics help assess a company’s sustainability and ethical impact. These metrics are categorized into Environmental (resource use, emissions), Social (workforce, community impact), and Governance (corporate ethics, transparency) for informed decision-making and compliance.

Environmental Metrics: Measuring a Company’s Impact on the Planet

Environmental metrics help businesses reduce their ecological footprint and contribute to sustainability. Companies track their total greenhouse gas (GHG) emissions, covering Scope 1 (direct emissions), Scope 2 (indirect emissions from energy), and Scope 3 (emissions across the supply chain). Key goals include reducing carbon intensity (emissions per unit of production) and increasing renewable energy use.

For example:

• KPI: Total GHG Emissions
• KPI: Renewable Energy Share

Companies also focus on improving water efficiency by minimizing water use per unit of production and enhancing waste management practices, such as increasing recycling rates and safely disposing of hazardous waste. Furthermore, preserving biodiversity and restoring natural ecosystems remain crucial for long-term environmental impact.

For example:

• KPI: Water Recycling Rate
• KPI: Land Area Preserved
• KPI: Biodiversity Initiatives

Social Metrics: Supporting Employees and Communities

Social metrics address how businesses interact with employees, communities, and other stakeholders. Companies track employee turnover rates, satisfaction scores from engagement surveys, and participation in wellness programs to promote well-being and retention.

For example:

• KPI: Employee Turnover Rate
• KPI: Training & Development
• KPI: Gender Representation

Diversity, equity, and inclusion (DEI) remain critical, with metrics covering pay equity and workforce diversity. Businesses also engage with local communities by investing in initiatives, promoting local hiring, and hosting stakeholder consultations. Simultaneously, Health and safety metrics, such as injury rates and the percentage of employees completing safety training, ensure that companies uphold their responsibility to protect their workforce.

For example:

• KPI: Community Investment
• KPI: Health & Safety Training Completion

Governance Metrics: Ensuring Transparency and Accountability

Governance metrics focus on the internal systems and processes that promote accountability. Companies measure board independence (percentage of independent directors) and diversity (representation of women or underrepresented groups).Executive accountability is assessed through metrics such as ESG-linked compensation, where a portion of executive pay is tied to achieving sustainability targets, and CEO pay ratios. To combat corruption and promote ethical behavior, companies track the completion rate of annual ethics training and the resolution of whistleblower reports.

For example:

• KPI: Board Independence
• KPI: ESG-Linked Compensation
• KPI: Anti-Corruption Cases

Additionally, businesses are required to publish regular ESG disclosures and ensure third-party assurance to maintain transparency. Risk management initiatives, including updated business continuity plans and cybersecurity audits, further strengthen a company’s ability to navigate challenges

Key Regulations Governing ESG in India

India has introduced several key regulations to streamline ESG reporting and promote sustainability among businesses. The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, form the cornerstone of ESG reporting for listed companies, mandating them to disclose their sustainability practices to enhance accountability and transparency.

The Business Responsibility and Sustainability Report (BRSR), introduced in 2021 by SEBI, replaced the older Business Responsibility Report (BRR) format. It requires companies to report on a comprehensive range of ESG activities. Starting from FY 2023-24, the top 150 listed companies are required to report on nine key performance indicators (KPIs) across environmental, social, and governance areas, with the requirement extending to the top 1,000 companies by FY 2026-27. Companies must also seek third-party assurance to ensure the reliability of these disclosures and mitigate risks of greenwashing.

Recent Developments in ESG Reporting

In December 2024, SEBI deferred the compliance deadlines for ESG disclosures related to value chain partners, providing businesses additional time to meet the stringent requirements under the BRSR framework. The Indian government has also introduced the India ESG Framework and offers incentives for green bonds to finance sustainable projects. Meanwhile, investors are increasingly integrating ESG factors into their decision-making processes, further encouraging businesses to adopt sustainable practices and improve transparency.

Importance of ESG in India

• Enhancing Investor Confidence: The transition to mandatory BRSR reporting is expected to boost investor confidence by providing standardized sustainability information.
• Global Alignment: These regulations align Indian companies with international ESG norms, facilitating access to global capital markets.
• Risk Management: Companies that adopt robust ESG practices are better positioned to manage risks associated with environmental regulations and social responsibilities.

Challenges in Implementing ESG

Despite advancements in the regulatory framework, several challenges persist:

• Awareness and Understanding: Many businesses still lack a comprehensive understanding of ESG principles and reporting requirements.
• Data Collection: Gathering accurate data for comprehensive reporting can be resource-intensive.
• Greenwashing Risks: The potential for misleading claims about sustainability practices highlights the need for rigorous verification processes and third-party assurance.

Conclusion

As we move further into 2025, understanding the evolving landscape of ESG regulations in India is crucial for businesses aiming to thrive in an increasingly conscientious marketplace. By embracing these principles and preparing for compliance with BRSR requirements, organizations can enhance their operational resilience while contributing positively to society and the environment.