Proposed ESG norms dilution for value chain a big relief for corporates

The Securities and Exchange Board of India (Sebi) has proposed a relaxation of value chain disclosures as part of Environment, Social, and Governance (ESG) norms for listed entities. This has come as a big relief for corporates as it will give them time to work with their value chain partners to meet the norms.

On May 22, Sebi came out with a consultation paper inviting comments on the recommendations of the Expert Committee for Facilitating Ease of Doing Business to BRSR.

The move is seen as an effort to strike a balance between promoting business sustainability reporting and easing the compliance burden on business by making the process less burdensome while maintaining transparency and accountability.

Ajay Tyagi, former Sebi chief, says the proposed relaxation of ESG disclosures will lighten the burden on corporates concerning value chain reporting.

“Initially, Sebi had mandated that firms comply and explain and now the proposed dilution makes it voluntary for one more year. That will give big companies time to educate their suppliers of the requirement. That (value chain disclosures) has to be done over a period and Scope 3 data has to be captured sooner or later in a phased manner,” said Tyagi.  

As per Sebi's July 2023 notification, ESG disclosures for the value chain shall apply to the Top 250 listed entities on a comply-or-explain basis from FY25 under the BRSR Core framework.

The value chain of listed entities will be reported under nine ESG attributes/key performance indicators (KPIs). For instance, companies must provide assurances such as on greenhouse gas (GHG) emissions, wage parity among genders, job creation and business openness among others.  

For corporates, getting data from the major value chain partners was a difficult task.

Himanshu Arora, Senior Manager, Sustainable Communication, IOCL, says that the company has many vendors and it is a mammoth task.

“For big companies, it becomes difficult to change the system too fast as part of the requirement and it is a tough and big task,” tells Arora.

The Sebi also proposes to redefine value chain partners. “Value chain shall encompass the upstream and downstream partners of a listed entity, individually comprising 2% or more of the listed entity’s purchases/sales (by value) respectively, and cumulatively comprising at least 75% of the listed entity’s purchases/sales (by value), respectively.”

Providing the rationale behind it, the paper said: “This shall bring down the maximum possible number of upstream/downstream value chain partners from 50 (in case of 2% threshold) to 38 (in case of 2% threshold with cut-off of 75%), hence enabling additional ease of doing business while still ensuring coverage of key value chain partners.”

Sankar Chakraborti, Chairman ESGrisk.ai and Group CEO, Acuité, says that this initiative aligns with the FY24 Union Budget's goal of simplifying regulations, reducing compliance costs, and considering public and industry suggestions.

“The change in the definition of value chain partners reduces the possible number of upstream/downstream value chain partners, enabling additional ease of doing business while still assuring a comprehensive coverage of key value chain partners. Additionally, there is a shift from comply or explain to a voluntary disclosure approach for ESG data,” Chakraborti tells Business Today.

Sebi also proposes introducing Green Credits as a leadership indicator that aligns BRSR with current environmental policies, encouraging companies to track and disclose their environmental impact more comprehensively.

“For FY24 disclosures, companies can choose between assessment or reasonable assurance for BRSR Core disclosures while from FY25 onwards, the assessment will replace assurance which exemplifies flexibility and can prove to be a cost-effective step while meeting the expectations of investors,” adds Chakraborti.

The Top 150 listed companies were to provide assurance on BRSR Core starting FY24, which was extended to 250 listed from FY25 onwards. By FY27 the Top 1,000 firms will be covered under the framework.