Understanding SEBI’s ESG Rating Indicators and Metrics

Understanding SEBI’s ESG Rating Indicators and Metrics


Introduction: 1

SEBI’s ESG Rating Indicators (Metrics) 2

1. Environmental Indicators 2

2. Social Indicators 2

3. Governance Indicators 3

ESG Rating Table 3

BRSR Core: A Framework for ESG Disclosures 4

Importance of ESG Ratings 5

Conclusion 5

Official SEBI Resources: 5




Introduction:

The Securities and Exchange Board of India (SEBI) has been actively promoting Environmental, Social, and Governance (ESG) disclosures to enhance transparency and accountability among listed entities. A pivotal component of this initiative is the Business Responsibility and Sustainability Report (BRSR), which mandates comprehensive ESG disclosures for listed companies.

SEBI’s ESG Rating Indicators (Metrics)

SEBI's ESG framework is structured around a set of indicators that assess a company's performance across various ESG dimensions. These indicators are categorized into three main pillars:

1. Environmental Indicators


Indicator

Description

Climate Change and Carbon Emissions

Disclosures related to greenhouse gas emissions, energy consumption, and climate risk assessments.

Water Management

Information on water usage, conservation efforts, and impact on local water resources.

Waste Management

Details on waste generation, recycling practices, and disposal methods.

Biodiversity

Impact of operations on local ecosystems and biodiversity conservation initiatives.

2. Social Indicators


Indicator

Description

Employee Relations

Data on workforce composition, labor practices, and employee welfare programs.

Community Engagement

Company's involvement in community development and social welfare activities.

Product Responsibility

Information on product safety, quality, and customer satisfaction measures.

Human Rights

Policies and practices to uphold human rights within the company's operations and supply chain.

3. Governance Indicators


Indicator

Description

Board Composition and Diversity

Details on board structure, diversity, and independence.

Ethical Conduct

Policies on anti-corruption, bribery, and ethical business practices.

Transparency and Accountability

Disclosures on financial reporting, audit practices, and stakeholder communication.

Risk Management

Approaches to identifying, assessing, and mitigating risks, including ESG-related risks.

ESG Rating Table

The following table illustrates a typical ESG rating scale that can be used to evaluate a company's ESG performance. SEBI encourages companies to align disclosures with recognized ESG rating methodologies:

ESG Rating

Description

Key Indicators Performance

Leader

Excellent ESG practices; exceeds regulatory requirements

High performance across Environmental, Social, and Governance metrics; proactive sustainability initiatives

Strong

Good ESG practices; meets most regulatory requirements

Strong performance in most ESG indicators; minor areas for improvement

Moderate

Adequate ESG practices; meets minimum regulatory requirements

Average performance; some gaps in ESG policies or implementation

Weak

Poor ESG practices; below regulatory expectations

Low performance across ESG indicators; significant gaps in policies and practices

Laggard

Very poor ESG practices; non-compliant

Minimal ESG performance; lacks proper policies or reporting

Note: SEBI does not prescribe a strict rating scale. Companies can adopt frameworks from recognized ESG rating agencies while ensuring BRSR disclosure compliance.

BRSR Core: A Framework for ESG Disclosures

In July 2023, SEBI introduced the BRSR Core framework to standardize ESG disclosures and enhance reporting quality. This framework emphasizes assurance of ESG disclosures and encourages companies to adopt best practices in sustainability reporting, providing investors with reliable and comparable ESG information.

Importance of ESG Ratings

  • Investor Decision-Making: ESG ratings help investors assess sustainability and ethical practices.

  • Regulatory Compliance: Ensures alignment with SEBI’s disclosure requirements.

  • Reputation Management: Strong ESG performance enhances brand reputation.

  • Risk Mitigation: Helps identify and mitigate environmental, social, and governance risks.

Conclusion

SEBI's ESG Rating Indicators and the BRSR Core framework are pivotal steps toward fostering sustainability and responsible business practices in India. Adhering to these guidelines helps companies enhance ESG performance while contributing to long-term sustainable development.

Official SEBI Resources:

 

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