Enviornmental Social Governance in Indian Context -ESG
Article by M S Krishnan, TFSC Consultant
The primary legislation for integrated ESG reporting in India is the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and related circulars.
Key developments include:
Introduction of the Business Responsibility and Sustainability Report (BRSR) in 2021, which mandates ESG disclosures for the top 1,000 listed companies.
Launch of the more stringent BRSR Core framework in 2023, requiring third-party assurance on 9 key ESG performance indicators for the top 150 listed companies, expanding to the top 1,000 by 2027.
For manufacturing industries, best practices include:
- Conducting environmental impact assessments to identify and address potential risks.
- Developing clear environmental policies, training employees, and establishing monitoring/reporting mechanisms.
- Implementing waste management, recycling, and energy efficiency programs.
Engaging in sustainable supply chain practices. - Establishing emergency response plans and conducting regular environmental audits.
- Staying informed on evolving environmental laws and adapting policies accordingly.
Challenges include
- lack of standardization in ESG reporting,
- limited regulatory framework, and
- lack of awareness/capacity among smaller firms.
Addressing these requires collaboration between regulators, companies, and investors to promote ESG compliance and a culture of sustainability.
The main challenges Indian manufacturing industries face in implementing ESG practices include:
Lack of standardization and comparability in ESG reporting: There is no standardized framework for ESG reporting in India, so companies choose their own metrics and formats, making it difficult to compare performance across firms.
Limited awareness and capacity among companies: Many Indian companies are new to ESG reporting and lack the systems, processes, resources and expertise needed to gather data and implement ESG practices, especially smaller firms.
Fragmented and obsolete manufacturing equipment: SMEs often use energy-intensive, environmentally harmful machinery that is outdated, but lack funds to upgrade to cleaner, more efficient technology.
Challenges in fair labor practices and living wages: ESG standards require “living wages” which vary by state in India, leading to differences in labor costs across textile producing states.
Additional costs of compliance and documentation: ESG compliances come with extra costs that thin profit margins, especially for the 90% of garment exporters and 50-60% of textile exporters that are MSMEs.
Lack of supportive global buyers: Some global buyers are not supportive of the extra costs Indian manufacturers incur to meet ESG standards, putting pressure on margins.
Limited regulatory framework: While some ESG regulations exist, they are not comprehensive enough to address all sustainability issues. Regulators, companies and investors need to further promote ESG compliance.
In summary, the key challenges are lack of standardization, limited awareness and resources, outdated equipment, labor cost variations, compliance costs, unsupportive global buyers, and gaps in the regulatory framework. Overcoming these will require collaborative efforts by all stakeholders.
