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Regulators need to watch out for disclosures on environmental, social and governance (ESG) investments amid growing demand for such investments and concerns of so-called ‘greenwashing’, Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), said on Wednesday.

Greenwashing is the process of manipulation to portray an organization’s product or services as environmentally friendly.

“While the regulators may be agnostic to where investors invest, they have an important role to play to ensure ESG disclosures by funds and issuers, and guard against greenwashing," Tyagi said.

He was speaking at an event organized by Ficci on Driving Climate Action through Disclosures: BRSR as Bedrock for ESG Action in India. The event took place in the backdrop of COP26, the 26th UN Climate Change conference.

Concerns of climate change and sustainable development have taken centre stage in global priorities, especially after the covid pandemic.

“These developments have far-reaching implications for corporates. Companies now face sustainability related risks to their businesses, which could manifest in the form of transition risks as we move to a low carbon economy, physical risks from climate-related events to their assets or even as reputational risks," Tyagi said.

To bring in greater transparency and enable market participants to identify and assess sustainability related risks and opportunities, the market regulator in May introduced Business Responsibility and Sustainability Report (BRSR).

The BRSR seeks disclosures from listed entities on their performance against nine principles. These echo the UN’s Sustainable Development Goals (SDGs) and cover both environment and social aspects such as climate action, responsible consumption and production, gender equality and working conditions.

Tyagi said investors are realizing the implications of sustainability related risks and have started treating these as material to their investment decisions. “This is reflected in the recent increase in total assets and inflows in sustainable funds globally," he said.

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