The proposal aims to simplify the reporting process and strike a balance between transparency and ease of doing business without compromising on accountability
In a significant move, the Securities and Exchange Board of India (SEBI) has proposed to ease value chain disclosures in the ESG (Environmental, Social, and Governance) norms for listed entities. The step is designed to provide companies with more flexibility to work with their value chain partners to meet the standards. The objective is to find a middle ground between promoting business sustainability reporting and reducing the compliance burden on businesses by simplifying the process without compromising on transparency and accountability.
As per Sebi's July 2023 notification, the implementation of ESG disclosures for the value chain will be a requirement for the Top 250 listed entities commencing from FY25. This will be done under the BRSR Core framework, which operates on a comply-or-explain basis, ensuring a systematic approach to ESG reporting.
The value chain of listed entities will be classified into nine specific ESG attributes/key performance indicators (KPIs). For instance, companies will be required to provide assurances on factors such as greenhouse gas (GHG) emissions, gender wage parity, job creation, and business transparency, among others. This comprehensive approach ensures that companies address a wide range of ESG issues.
For corporations, getting data from the major value chain partners was a difficult task. Sebi also proposes to redefine value chain partners. “Value chain shall encompass the upstream and downstream partners of a listed entity, individually comprising 2 percent or more of the listed entity’s purchases/sales (by value) respectively, and cumulatively comprising at least 75 percent of the listed entity’s purchases/sales (by value), respectively.”
The relaxation will reduce the highest possible number of upstream/downstream value chain partners from 50 to 38 and thereby promote ease of doing business even as it ensures that none of the key value chain partners is left out. The initiative is in sync with the FY24 Union Budget's goal of simplifying regulations, reducing compliance costs, and considering public and industry suggestions.
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.
The top 150 listed companies were required to ensure BRSR Core starting in FY24, and this requirement was extended to 250 listed companies from FY25 onwards. By FY27, the top 1,000 firms will be covered under the framework.