SEBI board approves balanced ESG framework, prescribes glide path for top 150 listed firms from FY24

Market regulator Sebi's board approved a balanced framework for  ESG (Environmental, Social and Governance) disclosures, ratings and investing. In a board meeting, the regulator said, to enhance the reliability of ESG disclosures, the BRSR (Business Responsibility and Sustainability Report) Core shall be introduced. For this, the regulator prescribed a glide path for top 150 listed firms in terms of market share from FY24. This path is likely to rise to top 1000 listed firms by FY27.

In statement on Wednesday, Sebi said, to enhance the reliability of ESG disclosures, the BRSR (Business Responsibility and Sustainability Report) Core shall be introduced, which contains a limited set of Key Performance Indicators (KPIs), for which listed entities shall need to obtain reasonable assurance."

It added, "a glide path is prescribed for applicability of BRSR Core, beginning with the top 150 listed entities (by market capitalization) from FY 2023 – 24 which shall be gradually extended to the top 1000 listed entities by FY 2026 - 27."

The top 150 listed companies in terms of market cap on BSE, is topped by Reliance Industries (RIL) with a valuation of over ₹15.12 lakh crore, followed by Tata Consultancy Services (TCS) and HDFC Bank with a market cap of over ₹11.48 lakh crore and ₹8.86 lakh crore respectively as of March 29, 2023. Other listed firms would be ICICI Bank, HUL, Infosys, HDFC, ITC, SBI, and Bharti Airtel in the top 10 list.

Further, Sebi said, that ESG disclosures and assurance (BRSR Core only) shall be introduced for the value chain of listed entities, with certain thresholds that shall be specified. This would be applicable to top 250 listed firms by market cap on a comply-or-explain basis from FY 2024 - 25 and FY 2025 - 26, respectively.

To facilitate the credibility of ESG Ratings, Sebi said, ERPs shall offer a separate category of ESG Rating called as ‘Core ESG Rating’, which will be based on the assured parameters under BRSR Core.

Emerging markets have a different set of environmental & social challenges, ESG Rating Providers (ERPs) shall be required to consider India / Emerging Market parameters in ESG Ratings.

However, Sebi said, "there would be no constraints on their issuing other / additional ratings as required by their clients."

In regards to ESG investing, Sebi mandated ESG schemes to invest at least 65% of AUM in listed entities, where assurance on BRSR Core is undertaken.

Also, it mandated third party assurance and certification by Board of AMCs on compliance with objective of the ESG scheme. Additionally, the regulator mandated enhanced disclosures on voting decisions with specific focus on environmental, social and governance factors.

Sebi made it mandatory for disclosure of fund manager commentary and case studies which inter-alia highlight how the ESG strategy is applied on the fund / investments.

Lastly, Sebi directed to introduce a new scheme category, enabling the launch of multiple schemes on ESG related factors.