A timeline of sustainability reporting: from voluntary to mandatory
It’s interesting to look at the evolution of sustainability reporting. What started decades ago as voluntary reporting by a select few corporates in service industry who had ADR/GDRs, has now evolved to mandatory reporting for listed companies and customer related pressure for reporting in case of unlisted companies.
In terms of evolution, in the 1970s, environmental reporting took root in Europe and North America, as companies voluntarily disclosed pollution and waste created from their manufacturing activities. The 1990s ushered in Triple Bottom Line reporting, integrating social, environmental, and economic performance. The founding of the Global Reporting Initiative (GRI) in 1997 solidified sustainability reporting frameworks. By the 2000s, growing awareness prompted widespread adoption, with GRI’s guidelines establishing standardized practices. From 2015, alignment with UN SDGs intensified focus on materiality and stakeholder engagement.
Since 2020, heightened investor and stakeholder interest propelled ESG factors into the spotlight, driving transparency and mainstream integration of ESG risk management. India also followed a similar path and incorporated governance reporting for listed companies and then in the last couple of years regulators have introduced mandatory ESG reporting and even reasonable assurance.
There were multiple global failures which prompted regulations to take accelerate and start strengthening reporting frameworks in the last two decades it has been evident that Environment and Social factors are equally important and can cause severe damages to the stakeholders of the companies in medium term or longer term.
ESG and financial impact
The growing awareness and evidence that ESG factors can have a material financial impact meant that investors globally started incorporating ESG into their investment decision making. Numerous studies have shown a correlation between strong ESG performance and financial performance over the long term. Companies which better manage ESG tend also be more resilient, attract better talent, and enjoy greater customer loyalty. The large market cap companies in India started embracing sustainability into their practices earlier than the mid and small cap companies as most of them play a significant part in global supply chains.
The framework for ESG reporting
There are key frameworks adopted by companies globally and including India. Some of the notable ones and widely used are Global reporting initiative (GRI) which mainly focusses on comprehensive sustainability reporting, and it contains universal standards across industries. GRI emphasizes stakeholder inclusiveness and materiality. The task forces on climate-related financial disclosures (TCFD), focusses on climate related financial disclosures and covers the companiesgovernance, strategy, risk management, and metrics. The Financial stability board(FSB) has recently officially transferred the responsibility from TCFD to the International Financial Reporting Standards Foundation (IFRS).
The sustainability accounting standards board (SASB) focusses on financially material sustainability information. In India, SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) which focusses on sustainability reporting for Indian companies and the principles are aligned with the National Guidelines on Responsible Business Conduct (NGRBC). BRSR is now mandated by SEBI for the top 1000 listed companies in India, covering essential metrics and principles.
Multiple frameworks and evolving regulations might create a dilemma for companies in India. The companies need to understand regulatory requirements and ensure they comply with mandatory regulations such as SEBI’s BRSR. Besides that the companies should assess its key stakeholder needs and prioritize various aspects material to their sector. As of 2022, 68% of the leading 5800 global companies use GRI standards and is usually the starting point for majority of the companies. Aligning with international standards is important as companies are part of global supply chain and it will help the company attract global investors.
ESG Assurance
ESG assurance involves a third-party verification of a company’s sustainability disclosures, which enhances the credibility of the reported data. Assurance of non-financial data allays any greenwashing concerns stakeholders may have. This also identify gaps and areas of improvements in a company’s ESG practices and having an independent reviewer is critical for a non-biased review. Last year, SEBI mandated companies to undergo a reasonable assurance of their BRSR core disclosures and this includes limited assurance of their value chain. By FY 2026-27, all the Top 1000 listed companies by market cap and its value chains are covered under this framework. For Indian companies operating on a global scale or seeking international investments, ESG assurance aligns their reporting with some of the global standards and expectations.
Conclusion
In conclusion, the journey of sustainability reporting, from voluntary to mandatory, underscores its pivotal role in modern corporate governance. The recent surge in ESG (Environmental, Social, Governance) awareness has propelled sustainability reporting into the spotlight, emphasizing the critical link between ESG performance and financial resilience.
For companies in India, navigating the array of frameworks and evolving regulations presents a challenge. However, embracing mandatory reporting requirements like BRSR, while aligning with global standards such as GRI, ensures compliance and fosters investor confidence. Moreover, the introduction of ESG assurance by SEBI provides an additional layer of credibility, enhancing the reliability of reported data and addressing stakeholders’ concerns.
Views of the author are personal and do not necessarily represent the website’s views.
Ramnath Iyer is the Co-founder and CEO of ESGDS. He has a proven track record as an operations and technology leader. With over 27 years of experience in the BFSI (Banking, Financial Services, and Insurance) sector, he possesses a wealth of knowledge in fintech operations, with a significant focus on Environmental Social Governance (ESG) Assurance and ESG Risk Assessments. Throughout his illustrious career, Mr. Iyer has consistently demonstrated his ability to drive business transformation, enhance scale and deliver substantial shareholder value.
