esg – Chasing Tales

SEBI BRSR Explainer

The Business Responsibility and Sustainability Reporting (BRSR) is India’s most significant regulatory intervention in the domain of Environmental, Social, and Governance (ESG) disclosures. Introduced by the Securities and Exchange Board of India (SEBI) as the successor to the Business Responsibility Report (BRR), the BRSR mandates that the top 1,000 listed companies by market capitalisation submit structured, principle-based ESG disclosures as part of their annual reports. The framework is anchored in the National Guidelines on Responsible Business Conduct (NGRBC), issued by the Ministry of Corporate Affairs (MCA) in 2019. The NGRBC itself replaced the earlier National Voluntary Guidelines (NVGs) of 2011.

Before we go ahead, here’s a brief map:

BRSR: This is the framework.
BRSR Core: This is a subset of the framework
Industry Standards: This is an interpretation guide.
Assurance/Assessment: How the reports are verified.
Value Chain Disclosures: The expansion.

History¹
India’s journey toward structured sustainability reporting began formally with the Business Responsibility Report (BRR), introduced under Regulation 34(2)(f) of the SEBI LODR Regulations, 2015. Initially applicable to the top 100 listed companies by market capitalisation from FY2013–14, the BRR was an attempt to institutionalise non-financial disclosures within the mainstream corporate reporting ecosystem.

However, the BRR had structural limitations that became increasingly apparent as the global ESG discourse matured:

The reporting format was largely narrative and open-ended, allowing considerable interpretive latitude that undermined comparability
There were no standardized quantitative metrics, making cross-company and cross-sector benchmarking virtually impossible
The framework had no third-party assurance requirements, leaving disclosures entirely self-declared and unverified
Coverage was limited to just 100 companies, leaving the vast majority of the Indian listed market outside the reporting ambit
The framework did not adequately reflect global developments such as the Paris Agreement, the UN Sustainable Development Goals (SDGs), or the rise of formal ESG investing frameworks

In May 2021, SEBI issued a notification amending the LODR Regulations, formally announcing the discontinuation of the BRR and its replacement with the Business Responsibility and Sustainability Reporting (BRSR) framework. The transition was planned in a phased manner to allow companies adequate time to build institutional capacity:

FY2021–22: Voluntary phase — the top 1,000 listed companies were encouraged, but not required, to adopt BRSR
FY2022–23 onwards: Mandatory phase — BRSR became a compulsory annual disclosure obligation for the same cohort

Who Must File?² ³
Under the amended LODR Regulations, the top 1,000 listed entities by market capitalisation are required to submit BRSR annually, starting from FY2022–23. The list of applicable companies is determined based on market capitalisation as of March 31 of the preceding financial year, introducing a dynamic element — companies moving in and out of the top 1,000 threshold will correspondingly enter or exit the mandatory disclosure obligation.

For FY2025–26, SEBI has reiterated that the top 1,000 listed entities by market capitalization remain obligated to file BRSR, with top 500 listed entities specifically required to obtain assessment or assurance of BRSR Core disclosures.

Unlisted companies are not currently required to file BRSR, regardless of size, unless they are captured within the consolidated reporting boundary of a listed parent
Subsidiaries of listed companies may be included within the reporting boundary if the parent opts for consolidated reporting
SME-listed entities are currently excluded, though SEBI has indicated potential future expansion
Foreign subsidiaries of Indian listed companies may be included or excluded based on the parent’s chosen reporting boundary

Filing Mechanisms⁴ ⁵
The BRSR must be filed as part of the annual report submitted to stock exchanges — typically by June 30, within three months of the financial year-end. Filing must be done in XBRL (eXtensible Business Reporting Language) format on the exchange portals (NSE/BSE NEAPS platforms), along with a PDF version for public viewing.

Structure⁶ ⁷ ⁸
The BRSR framework is organised into three sections:

Section A: General Disclosures
Section A establishes the organisational context within which all subsequent disclosures must be read. It functions as the foundational layer. Key disclosures include:

Company details: Name, Corporate Identification Number (CIN), registered office address, website, stock exchange listings, and the contact details of the BRSR designated officer — a requirement that enhances accountability by attaching a human name to the disclosure
Reporting boundary: Whether the report is prepared on a standalone or consolidated basis, and a clear explanation of what is included or excluded from scope
Business activities: Products and services contributing to 90% of the company’s turnover, along with individual percentage contributions — providing investors a clear map of what the company actually does
Markets served: Domestic and international presence, including export revenue as a percentage of total revenue
Employee and worker data: Total headcount broken down by permanent/temporary/contractual categories, gender diversity at the board and Key Management Personnel (KMP) level, and employee turnover trends across three financial years — providing a longitudinal view of workforce dynamics
CSR activities: A summary of Corporate Social Responsibility (CSR) initiatives and spending, though specific expenditure percentages are no longer separately required under BRSR, as they are captured in the Companies Act disclosures
Complaints and grievances: Any received on matters of responsible business conduct, including status of resolution

Section B: Management and Process Disclosures
This is the governance layer. Disclosures include:

Board oversight of ESG: Whether the board has a dedicated committee for sustainability, how frequently ESG topics appear on the board agenda, and whether a director has been designated as the responsible signatory for BRSR
Policies and frameworks: The existence, scope, and public availability of policies on human rights, labor standards, environmental protection, anti-corruption, data privacy, and other relevant domains — including whether these policies extend to value chain partners
Risk management integration: Whether ESG risks are formally integrated into the company’s Enterprise Risk Management (ERM) framework — a critical indicator of institutional maturity, as companies that treat ESG as separate from mainstream risk management are typically further behind in their sustainability journey
Stakeholder engagement: Formal mechanisms for identifying, mapping, and engaging with material stakeholders — employees, communities, suppliers, customers, investors, regulators, and civil society — including frequency and outcomes of engagement
Training and awareness programs: Details of training conducted on responsible business conduct across employee and worker categories
Grievance redressal mechanisms: Internal and external channels available to stakeholders to report concerns, and the effectiveness of these mechanisms

Section C: Principle-wise Performance Disclosures
Structured around the nine principles of NGRBC, it comprises both qualitative narratives and quantitative data points expressed in standardised units (kWh, tonnes of CO₂e, kiloliters, etc.). Each principle contains Essential Indicators (mandatory, 98) and Leadership Indicators (voluntary, 42). The tiered structure is strategically important for sectors with vastly different ESG profiles. A coal mining company and a software services firm face fundamentally different materiality landscapes; the essential indicators ensure a universal baseline while leadership indicators allow sector-specific differentiation.

The nine principles of the National Guidelines on Responsible Business Conduct (NGRBC)⁹ ¹⁰
Table:

#	Full NGRBC Statement
P1	Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable
P2	Businesses should provide goods and services in a manner that is sustainable and safe
P3	Businesses should respect and promote the well-being of all employees, including those in their value chains
P4	Businesses should respect the interests of and be responsive to all their stakeholders
P5	Businesses should respect and promote human rights
P6	Businesses should respect and make efforts to protect and restore the environment
P7	Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent
P8	Businesses should promote inclusive growth and equitable development
P9	Businesses should engage with and provide value to their consumers in a responsible manner

No principle can be reported on in isolation — SEBI and MCA both emphasize that they are interdependent, interrelated, and must be addressed holistically across a company’s operations and value chain.
Environmental disclosures are concentrated almost entirely in P6. Social obligations are distributed across P3, P4, P5, P8, and P9. Governance is embedded in P1, P7, and cuts across all nine through the Section B process disclosures.
Essential Indicators constitute the mandatory minimum disclosure requirement. These indicators are designed to be measurable, standardized, and verifiable, reducing the scope for narrative manipulation or selective disclosure.
Leadership Indicators represent best-practice and advanced-stage sustainability performance. They allow genuine sustainability leaders to differentiate themselves meaningfully from laggards, and they function as a forward-looking indicator of regulatory direction.

While Section C establishes the full ESG performance architecture, SEBI later identified a narrower subset of metrics that investors consistently relied upon — this became BRSR Core.

BRSR Core¹¹ ¹²
In July 2023, SEBI introduced the BRSR Core which is a focused subset of the most material, investor-relevant, and comparable ESG indicators within the broader BRSR. The BRSR Core comprises nine Key Performance Indicators (KPIs) organized across three ESG domains:

Environmental KPIs:

GHG Footprint (Scope 1 and 2 emissions, with PPP-adjusted intensity ratios)
Water Footprint (consumption and intensity)
Energy Footprint (consumption and intensity)
Waste Management (generation, recycling, disposal ratios)

Social KPIs:

Employee Well-Being and Safety (health benefits, accident rates, training metrics)
Gender Diversity in Business (gender representation across levels, pay gap disclosures, POSH complaints)
Enabling Inclusive Development (MSME procurement percentages, local sourcing)

Governance KPIs:

Fairness in Engaging with Customers and Suppliers (cybersecurity incidents, data privacy compliance, supplier payment terms)
Open-ness of Business (corporate governance disclosures, financial transparency indicators)

New KPIs introduced through March 2025 amendments include: job creation in small towns, openness of business metrics, and gross wages paid to women — reflecting SEBI’s intent to deepen the social dimension of BRSR Core.

The BRSR Core is not being rolled out uniformly across all 1,000 companies simultaneously. SEBI has adopted a company-size-stratified phased approach:

Financial Year	BRSR Core Applicability
FY 2023–24	Top 150 listed entities by market cap
FY 2024–25	Top 250 listed entities
FY 2025–26	Top 500 listed entities
FY 2026–27	Top 1,000 listed entities

This graduated expansion gives smaller companies within the top 1,000 additional preparation time while ensuring that the largest, most systemically important companies are subject to the most rigorous standards first.

Value Chain ESG Disclosures⁵ ¹² ¹³
SEBI recognises that for many industries, Scope 3 emissions (those embedded in purchased goods, logistics, and sold products) can represent 70–90% of total carbon footprint; excluding the value chain from sustainability reporting would render BRSR’s environmental data structurally incomplete. However, to ease implementation timelines, SEBI significantly revised the value chain disclosure framework through its March 28, 2025 circular, because many small and mid-size suppliers in Indian value chains are not yet equipped for formal ESG data reporting.

The value chain definition now explicitly covers upstream and downstream partners that individually contribute at least 2% of the listed entity’s total purchases or sales by value — a more precise and operationally workable threshold than the earlier reference to “top 10 suppliers and customers”
Companies may limit aggregate disclosures to partners covering 75% of total purchases and sales, providing a practical ceiling that prevents the exercise from becoming an administrative marathon
The applicable timeline is:

Financial Year	Value Chain Disclosure Requirement
FY 2025–26	Voluntary ESG disclosures for top 250 entities; prior year data voluntary
FY 2026–27	Voluntary assessment or assurance on value chain ESG disclosures

The shift from a comply-or-explain to a voluntary approach for FY2025–26 reflects SEBI’s responsiveness to industry feedback about implementation readiness — many small and mid-size suppliers in Indian value chains are not yet equipped for formal ESG data reporting.

Assurance Requirements¹²
When BRSR Core was introduced in July 2023, SEBI mandated reasonable assurance on BRSR Core disclosures in a phased manner. Reasonable assurance — the highest standard of verification in auditing practice — was considered the gold standard for ESG credibility, but proved operationally challenging given the nascent state of sustainability auditing in India.

In response to an Expert Committee recommendation, SEBI made a significant policy adjustment: through the March 2025 circular, the term “assurance” was replaced with “assessment or assurance” for BRSR Core verification. It means listed entities can now choose between:

Formal Assurance: Conducted by chartered accountants or statutory auditors following established auditing standards, providing a high degree of confidence in data accuracy
Assessment: A broader, potentially profession-agnostic verification process developed per standards by the Industry Standards Forum (ISF) in consultation with SEBI — designed to reduce compliance costs and open the market to qualified non-auditor sustainability practitioners

SEBI has specified that assessors and assurers must meet independence requirements — they cannot be entities that sell products to or offer consulting services to the reporting company.

The scope of assessment or assurance covers:

Accuracy of data reported in BRSR Core KPIs
Completeness of disclosures — are all required data points present?
Consistency with source documents — does reported data align with underlying records?
Compliance with BRSR format — are prescribed units, taxonomies, and templates used correctly?

Industry Standards on BRSR Core²
The December 20, 2024 circular introduced the Industry Standards on Reporting of BRSR Core, developed by the Industry Standards Forum (ISF) — a joint initiative of ASSOCHAM, FICCI, and CII (India’s three premier industry bodies). These standards are not legally binding but are strongly recommended by SEBI and are expected to become the de facto interpretation guide for listed entities and their assurance providers.

Key Provisions:

PPP-Adjusted Intensity Ratios: Companies must report environmental intensity metrics (GHG, energy, water, waste) per unit of revenue, with revenue figures adjusted for Purchasing Power Parity (PPP) using the latest IMF-published conversion rate for India. The same PPP rate must be applied consistently to both the current and prior year comparatives — preventing companies from manipulating apparent year-over-year improvement by switching conversion rates. This PPP adjustment is intended to facilitate meaningful comparison between Indian companies and global peers on investor dashboards.
Output-Based Intensity for Manufacturing: For manufacturing entities, output-based intensity ratios (e.g., tonnes of CO₂e per tonne of production) are required alongside revenue-based metrics. Service entities use Full-Time Equivalents (FTEs) as their input measure. This dual approach acknowledges that revenue-based intensity can be distorted by price fluctuations — a company’s emissions profile doesn’t change just because commodity prices spiked.
Spend-Based Estimation: Where primary measurement data is unavailable for emissions, energy, or water consumption, companies may temporarily use a spend-based approach — estimating environmental footprints based on annual expenditure data and published emission/consumption factors. This provides an entry point for smaller or less-instrumented companies while setting expectations that primary measurement will be established over time.
Greenhouse Gas Emission Factors: For Scope 2 emissions from purchased electricity, companies must use the latest grid emission factor published by the Central Electricity Authority (CEA). Companies using renewable energy certificates (RECs) or power purchase agreements (PPAs) for green power must clearly specify the accounting methodology.
Attribute-wise Technical Clarifications: The standards provide detailed technical guidance on each of the nine BRSR Core attributes.
Global Framework Alignment: The Industry Standards explicitly reference GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), and TCFD (Task Force on Climate-related Financial Disclosures), establishing conceptual bridges between BRSR and the global sustainability reporting landscape. Companies that already report under these frameworks can leverage their existing infrastructure rather than building parallel reporting systems.

Common Reporting Errors¹³
In May 2024, SEBI’s Expert Committee issued a report identifying systemic quality failures in BRSR submissions. The most frequently identified problems included:

Incorrect units: Reporting energy consumption in megawatts (a measure of power capacity) instead of kilowatt-hours (a measure of energy consumed) — a fundamental error that renders the data meaningless
Mathematical inconsistencies: Reporting waste recovered as greater than total waste generated — an arithmetically impossible outcome that signals either poor data governance or deliberate inflation of recycling figures
Unexplained zero disclosures: Reporting zero renewable energy without explanation, particularly for large industrial companies where this is implausible
Headcount mismatches: Total employees reported differently across different sections of the same report — suggesting that data is being pulled from multiple, unreconciled sources
Training overreporting: Training hours provided to more workers than the company’s total worker strength — again, an arithmetically impossible outcome
Poor quality environmental data under Principle 6: Generic, unsubstantiated figures for energy and emissions that are clearly not grounded in actual metering or operational data

SEBI’s response to these failures was to require:

Internal verification protocols before submission, with the responsible director confirming accuracy
Consistent use of prescribed units throughout the report
Cross-referencing of BRSR data with corresponding data in audited financial statements and directors’ reports
Documented explanations for any “Not Applicable” responses — a blanket N/A without justification is no longer acceptable

Cross-Referencing with Global ESG Frameworks²
Companies that already produce GRI- or TCFD-aligned reports — typically multinationals or companies with significant international investor bases — can provide a mapping table (cross-walk) showing how their existing disclosures satisfy BRSR requirements. This avoids duplication of effort and leverages existing reporting infrastructure.

It’s also important because with the alphabet soup of sustainability reports plaguing ESG reporting, it’s the right step to not view BRSR as a competing or isolated framework but as part of a convergent global sustainability reporting architecture.

Final points:

BRSR is less about sustainability storytelling and more about data discipline.
And discipline, in capital markets, compounds.
BRSR positions India as one of the few emerging markets with regulator-mandated ESG reporting, ahead of many developed jurisdictions in structured ESG disclosures.

Sources

Why ESG Risk is Business Risk

In 2020, Rio Tinto legally blew up 46,000‑year‑old Aboriginal rock shelters at Juukan Gorge in Western Australia to expand an iron‑ore mine.¹ The caves contained evidence of continuous human occupation over tens of thousands of years and were sacred to the Puutu Kunti Kurrama and Pinikura (PKKP) people.²

The blasting was technically lawful under existing approvals,³ but it triggered widespread outrage, a parliamentary inquiry,⁴ and the resignation of the CEO and two senior executives.⁵ Investors and ESG analysts had already flagged Rio Tinto as weak on community relations and governance factors capturing “risk of operational disruption due to community opposition”.⁶

It seems obvious that blasting someone’s spiritual sites to pieces would be considered harmful, so why wasn’t Rio able to see this before they did it?

The short answer is: their risk system did not treat those caves as a business risk. They thought it would be enough to simply get governmental approval rather than understanding the historical and cultural value of the caves. The environmental and social damage did not register as a real problem until after it detonated into a governance crisis.

Traditional finance textbooks worry about market and credit risk, the volatility of asset prices, and company‑specific risk that diversified investors can wash away. ESG risk simply asks a different set of questions about the same business:

How fragile is your position if one whistle‑blower email exposes years of “creative” emissions accounting?
What happens when your coal plant becomes uninsurable or unprofitable long before the end of its physical life?
What is your downside if a supplier’s factory fire kills workers and your brand name is on the label?

Those are not “extra” concerns. They are channels through which financial, legal, operational and reputational damage hits a company.

So,

E: “Climate change” becomes a three‑day flood that shuts your main warehouse, a mandatory carbon price that doubles operating costs, or the loss of export markets because you fail EU value‑chain rules.
S: “Labour conditions” becomes a factory fire, a strike during peak season, or a viral video of an abusive supervisor.
G: “Governance” becomes fraud in a subsidiary, a bribery case under anti‑corruption law, or your board signing off on misleading ESG claims and facing regulators later.

Case 1: Ali Enterprises
In 2012, a fire at the Ali Enterprises garment factory in Karachi killed more than 250 workers and injured many more, making it one of the deadliest factory fires in modern garment production and Pakistan’s worst industrial accident.⁷ The blaze reportedly followed an explosion, but what turned it into a mass‑casualty event were basic safety failures: locked exits, barred windows, no functioning fire alarm, inadequate equipment, and workers with no emergency training.⁷

Weeks before the fire, Italian auditor RINA had certified the factory as compliant with the SA8000 social responsibility standard, on behalf of German discount retailer KiK.⁸ The audit put a stamp of “safe” on what campaigners later called a death trap.

In ESG terms:

Social: labour rights and health and safety were not marginal; they determined whether hundreds of workers lived or died.
Governance: both the factory’s internal controls and the external certification regime failed. Social audits functioned more as reputational shields for brands than as real safety controls.

For brands sourcing from similar factories, the risk event is not “labour standards in xyz country”; it is “mass‑casualty factory disaster linked to our supply chain”, with consequences including legal claims, disrupted production, and global coverage featuring your logo.

Case 2: Rana Plaza
Months later, the Rana Plaza building collapse in Bangladesh killed more than 1,100 garment workers and injured thousands.⁹ Like Ali Enterprises, it exposed structural failings: illegal construction, ignored warning cracks, and workers pushed back into the building under threat of lost wages.⁹ ¹⁰

Together, Ali Enterprises and Rana Plaza turned factory safety from a “CSR” talking point into a core ESG risk for global fashion brands. They were now forced to answer the question: what is the probability and impact of catastrophic supplier accidents affecting our brand value?¹¹

In response:

More than 200 brands signed the legally binding Bangladesh Accord, committing to fund and enforce independent safety inspections and improvements in supplier factories.¹²
The Accord’s inspections and remediation programmes significantly reduced safety risks in covered factories, although broader labour standards and the situation in other countries still lagged.¹³

Again, this is ESG as business risk:

Social: worker safety and freedom to refuse unsafe work.
Governance: the difference between voluntary codes of conduct and binding, enforceable agreements with unions and NGOs.

Case 3: Prologis¹⁴
Prologis, a global logistics real estate company, analysed energy consumption across its portfolio, identified inefficiencies, invested in energy‑efficient technologies and renewables, and built this into its tenant proposition. The results included:

Lower energy costs across the portfolio.
A reduced carbon footprint.
Stronger positioning with ESG‑conscious tenants looking for efficient, low‑carbon facilities.

Here:

Environmental risk is transition risk: rising carbon prices, stricter building codes, and tenant demand for green buildings that could otherwise turn older assets into stranded ones.
Social shows up in tenant relationships and expectations.

Prologis treated these as business hazards, not future CSR talking points. It used ESG data to find where margins would quietly erode over time and acted early.

And what about Rio Tinto and the sacred caves? Through an ESG lens:

Environmental: irreversible destruction of a unique cultural and natural heritage site.
Social: Indigenous rights and loss of trust with local communities.
Governance: failure of board and management to treat community opposition and cultural heritage as material risks, not tick‑box compliance.

The risk event here is not “cultural heritage”. It is “destruction of a sacred site leading to loss of social licence, political and investor backlash, and leadership crisis”. The fact that approvals were in place did not prevent reputational loss or the internal disruption of a forced leadership change.

Once you see these stories together, the claim “ESG risk is business risk” stops being a slogan:

Ali Enterprises and Rana Plaza show social and governance failures turning into catastrophic operational, legal, and reputational losses.
Prologis shows environmental and social foresight translating into lower costs and stronger market position.
Juukan Gorge shows an environmental and social misjudgement leading to a governance crisis and loss of social licence.

That is why ESG‑related risks should sit inside the same enterprise risk management framework as credit, operational, and market risks, not in a separate CSR annex. Assess climate, environmental, social, and governance risks on the same likelihood and impact scales you use elsewhere, so boards can compare them directly and prioritise consistently.

Proactive ESG risk management then looks like any good risk practice:

Watching for weak signals and early warning indicators (accidents in similar factories, community complaints, climate policy shifts).
Stress‑testing strategies against multiple futures, including more aggressive climate policy or stricter human‑rights regulation.
Updating assumptions as technology, regulation, and stakeholder expectations move.

ESG does not create new categories of risk. It forces companies to confront risks they were already running but not properly measuring. Ultimately, value is shaped as much by social licence, institutional trust and regulatory trajectory as by commodity prices or quarterly earnings, and companies that treat ESG signals as peripheral optics problems discover too late that they were early warnings of business loss. Those that integrate them into core decision-making, capital allocation and board oversight are not being “ethical” in a narrow sense; they are protecting asset value, preserving optionality, and reducing the probability of reputational damage.

Sources

Materiality

Information is considered material if its inclusion or exclusion could significantly affect stakeholders’ judgments. In accounting, it is a concept from Generally Accepted Accounting Principles (GAAP) that asks whether omissions or misstatements in financial reporting would influence the economic decisions of users.¹ ² This is often called the Materiality Threshold, or the limen at which financial information becomes significant enough to potentially influence the decisions of users of financial statements, such as investors, stakeholders, or auditors. Both quantitative and qualitative factors are involved in setting and applying these thresholds, and there is substantial professional judgment involved.³

Materiality Thresholds² ³
Quantitative thresholds provide a numerical basis for determining whether a misstatement or omission is material or not. For example, a company may decide that if an incident affects their gross revenue by 1%, they will inform stakeholders about it. That percentage can be anything that the company decides, for instance, their threshold may be 5% of post tax net profits, or 3% of EBITDA, etc.

Qualitative thresholds reflect circumstances where the nature or context of an item makes it significant, even if the amount involved is not large, and typical examples include information that may lead to a different rating by analysts if they knew about it, information that will affect whether the organisation has to comply with different regulations (say a small change in numbers that would lead to an Indian company needing to comply with Section 135 of the Companies Act, 2013, which prescribes the quantitative floors for which companies must participate in mandated CSR). Other issues that may be considered are likely to be changes in earnings trends, changes in key ratios, anything that has an impact on the company’s reputation, or any other situation that involves a change in stakeholder risk perception.

Materiality thresholds ensure financial information is decision-useful for stakeholders. Regulatory frameworks require professional accountants and auditors to apply judgment and not just formulas in deciding what is material. This ensures that both the letter and spirit of decision-useful disclosure is respected for investors and other users

Another thing to note is that material issues are not static- they change over time with shifts in business models, regulations, stakeholder expectations, or major events.

Materiality in ESG⁴ ⁵
Materiality in ESG determines which sustainability topics are most relevant not just to financial stakeholders, but to broader stakeholder groups including employees, communities, regulators, and civil society. Unlike accounting, ESG materiality often considers both quantitative metrics (such as emissions, water use, or injured employees per year) and qualitative factors (like reputation, regulatory compliance, or community relationships).

Double Materiality⁶ ⁷
Double materiality means looking at two types of materiality while making decisions:

Financial Materiality: how ESG issues impact the company’s finances and operations; and
Impact Materiality: the company’s influence on the environment and society, such as its carbon footprint, labor practices, or community impact (even if those impacts do not affect financial performance).

Materiality assessments allow organisations to understand which matters are important, or material, for their stakeholders.

How to do a Materiality Assessment⁸ ⁹
Frameworks like SEBI’s BRSR in India or the EU’s CSRD mandate ongoing materiality assessments and transparent disclosures for regulated companies, and they also want to know how the company has determined what is material.¹⁰ ¹¹ ¹²

Define objectives and scope: why is the assessment being done?
Identify and prioritise stakeholders: list all stakeholders, map how they are affected by the issue or project, and for each, explain how they can influence the company.
List potentially material topics: make a list of all topics that are material for the company and the different stakeholders (whether for financial or ESG materiality assessment).
Stakeholder engagement: understand through discussions, interviews, questionnaires, or any other such participative method what different stakeholders think about the issues at hand.
Materiality matrix: Score and rank topics by their importance to stakeholders (vertical axis) and their impact on the business (horizontal axis). The most important issues will naturally find themselves at the top right of the matrix, and the visual display will help prioritise the critical issues. At this point, it is important to understand whether the issue is time critical or issue critical, or both. Once you do have a handle on this, you can act on the most crucial matters.
Review: Review your findings, make any corrections as required- for example, perhaps there is a vocal stakeholder who is not as important in the scheme of things for your company, but a quiet one who is very important, so adjust your findings accordingly.
Act: Now you have your reporting priorities sorted, so go ahead and report. Make sure to review your materiality matrix annually, or whenever anything out of the ordinary occurs (if it requires an EGM, it also requires a review of your matrix).

Here’s an example of materiality matrix:

Materiality matrix of a hospital group:

Topic	Stakeholder Interest	Business Impact	Example/Notes
Patient Safety and Quality	Very High	Very High	Reduction of harm, regulatory compliance, central to brand trust
Data Security & Patient Privacy	Very High	High	Digital records, ransomware risk, GDPR/HIPAA provokes stakeholder concern
Affordability & Access to Care	High	High	Press, patient, regulator & government pressure for inclusive access
Staff Wellbeing & Retention	High	High	Burnout, turnover, COVID-19 impact, unionization risk
Infection Prevention	High	High	COVID-19, MRSA, and other healthcare-associated infections
GHG Emissions/Energy Use	Medium	High	Hospital operations, energy/waste, regulatory/PR risk
Responsible Procurement	Medium	Medium	Ethical sourcing of drugs, equipment; supply chain resilience
Community Health Initiatives	High	Medium	Vaccination, awareness programs raise reputation, stakeholder goodwill
Diversity, Equity & Inclusion	Medium-High	Medium	Workforce diversity, bias reduction, EEO/anti-discrimination focus
Medical Research Ethics	Medium	Medium	Consent, transparency, clinical trial reputation
Water Use & Waste Management	Medium	Medium	Medical waste, recycling, water conservation efforts

Hospital group materiality matrix

Pitfalls
While doing the above, make sure to avoid the most common pitfalls, which are:

Not involving external stakeholders (relying only on internal voices leads to bias).
Poor documentation or lack of transparency in why and how topics were prioritised.
Treating materiality as a one-off exercise instead of reviewing it annually or when major events occur.
Not linking materiality to company strategy; using it only for reporting/compliance, not real decision-making.

Embedding materiality into an organisation’s core functions protects it from Financial and ESG related risks (I just call them FESG in my head nowadays), and using materiality-informed strategy will lead to better-than-competition, more resilient long term performance, as well as improved reputation: materiality is the bedrock of value creation and risk avoidance. This is why organisations should pay attention to it.

Sources

Indian MSMEs and ESG

The regulatory landscape for Indian MSMEs has shifted dramatically with the Securities and Exchange Board of India’s (SEBI) Business Responsibility and Sustainability Reporting (BRSR) Core framework. This framework now requires India’s largest listed companies to report not only on their own Environmental, Social, and Governance (ESG) performance but also on the ESG practices of key value chain partners—including MSMEs.¹

Scope and Coverage²

Applicability: From FY 2024–25, the BRSR Core value chain disclosure applies to the top 250 listed entities by market capitalization, with phased expansion in subsequent years.
Value Chain Reporting: Companies must report ESG data for their top upstream (suppliers) and downstream (customers) partners that individually account for 2% or more of purchases or sales, or collectively represent at least 75% of total purchases and sales by value.
KPIs: Reporting covers greenhouse gas emissions, energy and water use, circularity, and social factors attributable to the listed company’s business with each value chain partner.
Timeline: Mandatory value chain ESG disclosures begin in FY 2025–26, with third-party assessment or assurance required from FY 2026–27.
This means MSMEs that are part of the supply chains of large corporates must now demonstrate their sustainability credentials—or risk exclusion.

The Business Case for MSMEs Going Green

Continued Access to Large Corporate Supply Chains: With large companies under regulatory pressure to disclose their value chain’s ESG performance, MSMEs unable to provide relevant sustainability data or demonstrate green practices risk being replaced by more compliant competitors.
Market and Export Opportunities: Many global buyers and Indian corporates now require ESG compliance from suppliers. MSMEs with green credentials gain access to new markets, preferred vendor status, and export opportunities, especially as international regulations tighten.
Cost Savings and Efficiency: Adopting green practices—energy efficiency, waste reduction, renewable energy—reduces operational costs and improves margins, directly benefiting the bottom line.
Regulatory Preparedness: MSMEs that align early with BRSR and other ESG frameworks are better positioned for future regulations, including potential carbon taxes, border adjustments, and mandatory disclosures.
Enhanced Reputation and Financing: Demonstrating ESG leadership boosts credibility with customers, investors, and lenders, and can improve access to green finance and government incentives. Companies with strong ESG credentials often enjoy better access to financing and lower costs of capital.

Challenges Hindering MSMEs’ Green Transition³

Despite the clear benefits, MSMEs face significant barriers:

High Upfront Costs: Transitioning to green technologies requires capital, which is often scarce for MSMEs operating on thin margins.
Limited Access to Green Finance: Only about 10% of MSMEs access formal green finance, mainly due to collateral and credit barriers. A third are unaware of major schemes like ZED certification.⁴
Infrastructure Gaps: Many MSMEs, especially in tier II and III cities, rely on outdated machinery and diesel generators due to unreliable power grids.
Technological and Knowledge Constraints: Lower technological sophistication and lack of awareness about sustainability frameworks impede progress.
Opportunities on the Horizon
Sustainable practices are opening new markets and enhancing credibility, especially for MSMEs in global supply chains where environmental compliance is increasingly mandatory. For example, textile MSMEs in Tiruppur have adopted Zero Liquid Discharge systems to meet stringent European export requirements.

The Numbers⁴

Solar Adoption: By 2024, 21% of Indian MSMEs were powered by solar energy, and 31% had adopted energy-efficient machinery.
Rooftop Solar: Installations reached 11.87 GW, cutting average power bills by 30% and typically paying for themselves within three to five years.
Emission Reductions: This shift could potentially reduce CO₂ emissions by 110 million tonnes annually.
State Leaders: Textile and chemical industries are leading the transition, with Gujarat, Maharashtra, and Kerala making significant progress, and other states like Uttar Pradesh eager to join the movement.
If this momentum continues, MSMEs could contribute up to 50% of India’s 2030 renewable energy goal—a transformative impact for the nation’s sustainability ambitions.
However, not all numbers are positive: The Government of India launched two schemes to help MSMEs adopt environmentally friendly technology, the MSME GIFT (Green Investment and Financing for Transformation) Scheme, which focuses on supporting MSMEs to adopt clean and green technologies through concessional finance and risk-sharing, and the MSME SPICE (Scheme for Promotion and Investment in Circular Economy), which aims to incentivize MSMEs to implement circular economy practices such as recycling, reuse, and resource efficiency, primarily through capital subsidies. As of December 2024, MSME SPICE had assisted only six MSME accounts, with one reported beneficiary from Ahmednagar, Maharashtra. The total expenditure was ₹1.31 crore out of the ₹472.5 crore budget⁵… and as for MSME GIFT, as of July 2025, there are no published official numbers from the Ministry of MSME, SIDBI, or other government sources specifying the exact number of MSMEs that have received benefits under the GIFT scheme. The World Bank’s implementation report on the broader RAMP program (which includes GIFT) notes that as of November 2024, the program had disbursed $231 million (about 46% of the total loan) for MSME competitiveness and green technology adoption, but does not break down numbers specifically for GIFT.⁶

The Road Ahead: From Compliance to Competitive Advantage

The SEBI BRSR Core mandate is more than a compliance requirement; it’s a catalyst for a fundamental shift in how Indian MSMEs operate. Integrating ESG principles is no longer just about risk mitigation—it’s about unlocking new business opportunities, future-proofing operations, and contributing to India’s global climate commitments.

For MSMEs, the message is clear: Going green is not just good for the planet—it’s now essential for business survival and growth.

Sources

A guide to India’s legal framework for ESG

ESG stands for Environmental, Social, and Governance. ESG investing evaluates companies on non financial factors covered under any of these three categories. While many issues are multifaceted and may fall under one or more of these headings, the way to differentiate them may lie in separating into the Planet, People, and Profit maxim: E covers all issues that affect the planet, S is for anything affecting humans directly, and G (the most regulated of the three) is for corporate governance issues.

India has a web of laws, regulations, and policies that can be classified as ESG requirements or enablers (now that the acronym ‘ESG’ exists, that is). Here is a run down of some of the most prominent ones (it’s long):

I. Environmental Legal Requirements in India

1. Wildlife (Protection) Act, 1972
This Act provides a legal framework for the protection of wildlife species and their habitats, including the creation of protected areas such as national parks and wildlife sanctuaries. It prohibits hunting and trade in endangered species, and prescribes penalties for violations. The Act also empowers authorities to regulate activities within protected areas to conserve biodiversity.

2. Water (Prevention and Control of Pollution) Act, 1974
The Water Act is designed to prevent and control water pollution and maintain or restore the wholesomeness of water. Section 16 tasks the Central Pollution Control Board with setting standards for the discharge of pollutants into water bodies, monitoring compliance, and coordinating with state boards. The Act provides for the prosecution of violators and the issuance of directives to polluting entities to cease or modify operations.

3. Forest (Conservation) Act, 1980
The Forest (Conservation) Act restricts the diversion of forest land for non-forest purposes without prior approval from the central government. It aims to curb deforestation and promote sustainable forest management by requiring compensatory afforestation and environmental impact assessments for approved projects. The Act also provides for the protection of forest biodiversity and the rights of forest-dwelling communities.

4. Air (Prevention and Control of Pollution) Act, 1981
This Act establishes a regulatory framework for the prevention, control, and abatement of air pollution in India. Section 17 assigns State Pollution Control Boards the responsibility to set air quality standards, monitor emissions from industrial and vehicular sources, and enforce compliance through permits and penalties. The Act empowers authorities to close or restrict operations of polluting industries and to promote cleaner technologies.

5. Environment (Protection) Act, 1986
The Environment (Protection) Act, 1986, is India’s primary legislation for the protection and improvement of the environment. Section 3 of the Act empowers the central government to take all necessary measures to protect and improve environmental quality, prevent and control pollution, and set standards for emissions and discharges. Section 6 authorizes the government to make rules for regulating environmental pollution, covering aspects such as waste management, hazardous substances, and the preservation of ecological balance.

Key Rules under the Environment (Protection) Act:

E-Waste (Management) Rules, 2022:
These rules establish responsibilities for manufacturers, producers, and recyclers of electronic and electrical equipment to ensure environmentally sound management of e-waste. They require the implementation of extended producer responsibility, mandating producers to collect and channel e-waste to authorized dismantlers or recyclers. The amendments in 2018 further tightened collection targets and reporting obligations, aiming to reduce the environmental impact of rapidly growing electronic waste streams.
Battery Waste Management Rules, 2022:
The 2001 rules regulate the collection, processing, and recycling of used batteries to prevent hazardous lead and acid pollution. The Draft Battery Waste Management Rules, 2020, propose stricter norms for battery producers, including mandatory take-back systems and environmentally safe recycling processes. These provisions are designed to minimize environmental contamination and promote circular economy practices in the battery industry.
Bio-Medical Waste Management Rules, 2016:
These rules provide a framework for the safe handling, segregation, transport, treatment, and disposal of biomedical waste generated by healthcare facilities. They impose strict requirements on hospitals and clinics to ensure that infectious and hazardous waste does not contaminate the environment or pose health risks to the public. Compliance is enforced through regular audits and penalties for violations.
Plastic Waste Management Rules, 2016, 2021, 2022:
The rules aim to reduce plastic pollution by imposing restrictions on the manufacture, sale, and use of certain single-use plastics. They require producers, importers, and brand owners to implement extended producer responsibility, ensuring that plastic waste is collected and recycled or disposed of in an environmentally friendly manner. Amendments in 2021 and 2022 further expanded the scope of regulated items and tightened compliance timelines. The 2022 notification banned Single Use Plastics (SUPs) with effect from 01.07.2022.
Solid Waste Management Rules, 2016:
These rules set out the responsibilities of municipal authorities and other stakeholders for the segregation, collection, processing, and disposal of solid waste. They emphasize the need for source segregation of biodegradable and non-biodegradable waste, and promote composting, recycling, and waste-to-energy initiatives. The rules also mandate the inclusion of informal waste pickers into the formal waste management system.
Construction and Demolition Waste Management Rules, 2016:
The rules require generators of construction and demolition waste to segregate and store waste at source, and ensure its safe transportation to recycling facilities. They promote the recycling and reuse of debris, reducing the burden on landfills and conserving natural resources. Local authorities are tasked with establishing collection centres and monitoring compliance.
Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 (amended 2019):
These rules regulate the generation, handling, storage, transportation, and disposal of hazardous wastes, including their import and export. They mandate that hazardous waste be handled only by authorized operators and in accordance with prescribed safety standards. Amendments in 2019 strengthened provisions for tracking and reporting waste movements, and aligned Indian regulations with international conventions.
Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989:
These rules govern the safe manufacture, storage, and import of hazardous chemicals, requiring companies to undertake risk assessments and prepare on-site and off-site emergency plans. Facilities must notify authorities about the quantities and types of hazardous chemicals handled, and are subject to regular inspections. The aim is to prevent industrial accidents and minimize risks to workers and the surrounding community.
Coastal Regulation Zone Notification, 2019; related 2021 procedures:
The notification demarcates coastal regulation zones and restricts certain activities to protect sensitive coastal ecosystems. It sets out guidelines for permissible development, conservation of mangroves, and protection of traditional fishing communities. The 2021 procedures clarify compliance requirements and streamline the approval process for coastal projects.
Environment Impact Assessment (EIA) Notification, 2006 (and amendments):
The EIA Notification requires prior environmental clearance for specified categories of projects, based on a detailed assessment of their potential impacts. It mandates public consultations, expert appraisal, and periodic monitoring to ensure compliance with environmental safeguards. Amendments over the years have sought to balance developmental needs with environmental protection by refining project categories and timelines. A draft considered controversial was tabled in 2020 which is still under review, and nothing major has been finalised as of writing this.

6. Public Liability Insurance Act, 1991
This Act requires owners handling hazardous substances to take out insurance policies to provide immediate relief to victims of accidents. It ensures that compensation is available for injury, death, or property damage resulting from hazardous activities, regardless of fault. The Act also establishes an Environmental Relief Fund to support compensation payments.

7. Energy Conservation Act 2001 (amended 2022)
The original Energy Conservation Act, 2001 established the Bureau of Energy Efficiency (BEE) and set norms for energy efficiency in appliances, buildings, and large energy consumers. The 2022 amendment (which came into effect on 01.01.2023), establishes a legal basis for a carbon market, mandates non-fossil energy use by designated users, expands efficiency standards, and updates building codes.

8. Biological Diversity Act, 2002
The Biological Diversity Act promotes the conservation of India’s biological diversity and the sustainable use of its components. It establishes mechanisms for equitable sharing of benefits arising from the use of genetic resources, and regulates access to biological resources by domestic and foreign entities. The Act is implemented through the National Biodiversity Authority and State Biodiversity Boards.

9. National Green Tribunal Act, 2010
The National Green Tribunal Act establishes a specialized tribunal for the expeditious resolution of environmental disputes involving multi-disciplinary issues. The Tribunal has the power to provide relief, compensation, and restitution of damaged environments, and its orders are binding. It aims to ensure effective and speedy environmental justice for affected parties.

10. Policies and Schemes

Carbon Credit Trading Scheme, 2023
The Carbon Credit Trading Scheme, 2023, introduces a regulated market for trading carbon credits in India. It enables entities that reduce their greenhouse gas emissions below prescribed targets to sell credits to those exceeding their limits. This market-based mechanism incentivizes emission reductions and supports India’s climate change commitments. This scheme is now operational under the Energy Conservation Act (amended 2022).
Green Credit Disclosures (SEBI LODR, BRSR Principle 6)
From the financial year 2024-25, listed companies are required to disclose the green credits they generate or procure, as well as those of their top-10 value chain partners. This disclosure is part of the Business Responsibility and Sustainability Reporting (BRSR) framework and aims to increase transparency and accountability in corporate environmental performance.
Priority Sector Lending for Renewable Energy (RBI Guidelines)
The Reserve Bank of India’s guidelines on priority sector lending encourage banks to finance renewable energy projects by including them in their priority lending targets. This policy aims to boost the adoption of clean energy technologies and help India meet its renewable energy goals. Loans are extended to enterprises and households for investments in solar, wind, and other renewable energy sources.
Green Deposits Framework (RBI)
The Green Deposits Framework, introduced by the RBI, requires regulated entities to establish board-approved policies for the allocation of green deposits. These deposits are earmarked for financing environmentally sustainable projects, such as renewable energy, clean transportation, and waste management. The framework aims to channel financial resources into projects that contribute to environmental sustainability.

II. Social Legal Requirements in India

1. Human Rights Laws (Constitutional Provisions)
The Indian Constitution enshrines a broad range of fundamental rights that form the foundation of social legal requirements. Articles 14 to 18 guarantee equality before the law and prohibit discrimination based on religion, race, caste, sex, or place of birth, ensuring all citizens are treated fairly. Article 19 protects freedoms such as speech, association, and movement, while Article 21 guarantees the right to life and personal liberty, which courts have interpreted to include the right to livelihood and humane working conditions.

Articles 23 and 24 prohibit trafficking, forced labour, and child labour in hazardous industries, reflecting India’s commitment to protecting vulnerable populations. Article 46, a Directive Principle, directs the State to promote the educational and economic interests of Scheduled Castes, Scheduled Tribes, and other weaker sections, and to protect them from social injustice and exploitation. These provisions are supported by a range of statutes and enforcement mechanisms to ensure compliance and redressal.

2. Protection of Human Rights Act, 1993
The Protection of Human Rights Act, 1993, establishes the National Human Rights Commission (NHRC) and State Human Rights Commissions to investigate human rights violations and promote awareness. The NHRC has powers to inquire into complaints, intervene in court proceedings, and recommend remedial action to the government.

3. Labour Laws

Payment of Wages Act, 1936:
The Act mandates the timely payment of wages to workers, typically by the last working day of the month. It prohibits unauthorized deductions and provides for the resolution of wage-related disputes through designated authorities.
Minimum Wages Act, 1948:
This Act ensures that workers receive at least the minimum wage fixed by the government for different sectors and regions, preventing exploitation and poverty. It also regulates working hours, overtime pay, and conditions of work, contributing to the well-being of the labor force. Enforcement is carried out through labor inspectors and penalties for non-compliance.
Employees State Insurance Act, 1948 and Employees’ Provident Fund and Miscellaneous Provisions Act, 1952:
These Acts provide social security benefits to workers, including retirement savings, medical care, and insurance against sickness, disability, and death for workers and their families. Employers and employees contribute to provident fund and insurance schemes, which are managed by statutory bodies.
Factories Act, 1948 & Shops and Establishment Act, 1960:
These laws regulate working conditions in factories, shops, and commercial establishments, setting standards for health, safety, welfare, and leave entitlements. They require employers to provide safe workplaces, adequate ventilation, and sanitation facilities, and to limit working hours to prevent overwork. The Acts mandate regular inspections and empower authorities to enforce compliance.
Maternity Benefit (Amendment) Act, 2017:
The Act provides for six months of fully paid maternity leave for women employees, as well as additional leave for miscarriage or medical termination of pregnancy. It also requires employers to provide nursing breaks and crèche facilities for young children.
Labour Codes (2019–2020):
44 labour laws have been consolidated into four codes: Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code to streamline compliance, reduce complexity, and increase worker protection, including for gig and platform workers.

4. Gender and Social Equity Laws

Protection of Civil Rights Act, 1955:
Also known as the Untouchability Offences Act, this law abolishes untouchability and protects the civil rights of marginalized communities. It prohibits discrimination in access to public places, services, and employment, and provides for the prosecution of offenders.
Equal Remuneration Act, 1976:
This Act mandates equal pay for equal work for men and women, addressing gender-based wage discrimination in the workplace. It prohibits employers from discriminating in recruitment, promotion, and conditions of service on the basis of gender. The Act is enforced through labor authorities and provides remedies for aggrieved employees.
Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989:
The Act defines specific offences against members of Scheduled Castes and Scheduled Tribes, including violence, humiliation, and social boycott. It establishes special courts for the speedy trial of cases and prescribes stringent penalties to deter discrimination and atrocities. Amendments have expanded protections for women and strengthened enforcement mechanisms.
Maintenance and Welfare of Parents and Senior Citizens Act, 2007:
This Act obligates children and heirs to provide maintenance for their parents and senior citizens, ensuring their welfare and dignity in old age. It establishes tribunals for the speedy resolution of maintenance claims and prescribes penalties for neglect or abandonment.
The Transgender Persons (Protection of Rights) Act, 2019:
The Act recognizes the rights of transgender persons and prohibits discrimination in education, employment, healthcare, and access to public services. It provides for the issuance of identity certificates and mandates the establishment of welfare schemes and grievance redressal mechanisms.
Medical Termination of Pregnancy (Amendment) Act, 2021; Assisted Reproductive Technology (ART) Regulation Act, 2021; Surrogacy Regulation Act, 2021:
These laws expand access to safe and legal abortion services, regulate assisted reproductive technologies, and ban commercial surrogacy while allowing altruistic surrogacy for Indian citizens.

III. Governance Legal Requirements in India

1. Companies Act, 2013

Section 149:
This section requires certain classes of companies to have a specified number of independent directors, including at least one female director, on their boards. Independent directors are expected to bring objectivity and balance to board decisions, and to safeguard the interests of minority shareholders and other stakeholders.
Section 166:
Section 166 outlines the duties of company directors, mandating them to act in good faith and in the best interests of the company, its employees, shareholders, the community, and the environment. Directors must avoid conflicts of interest and act with due care, skill, and diligence in discharging their responsibilities.
Section 134:
This section requires the Board of Directors to prepare an annual report that includes information on the company’s financial performance, conservation of energy, and other ESG-related disclosures. The report must be presented to shareholders at the annual general meeting and filed with the Registrar of Companies.
Section 178:
Section 178 mandates the constitution of Nomination and Remuneration Committees and Stakeholders Relationship Committees for companies with more than 1,000 security holders. These committees oversee the appointment and remuneration of directors and resolve grievances of shareholders and other stakeholders.
Schedule IV:
Schedule IV sets out the code of conduct for independent directors, emphasizing their role in safeguarding the interests of all stakeholders, particularly minority shareholders. It requires independent directors to ensure the company has adequate vigil mechanisms, report unethical behavior, and balance conflicting stakeholder interests.

2. Corporate Social Responsibility (CSR) Requirements (Section 135 and Schedule VII)

Applicability and Committee Formation
Section 135 of the Companies Act, 2013, mandates that every company, including its holding and subsidiary companies, and certain foreign companies operating in India, must comply with CSR requirements if they meet any one of the following financial criteria during the immediately preceding financial year:

Net worth of ₹500 crore or more;
Annual turnover of ₹1,000 crore or more;
Net profit of ₹5 crore or more.

Such companies must constitute a Corporate Social Responsibility Committee of the Board, with at least three directors (including one independent director, where applicable). The Committee formulates and recommends a CSR policy, recommends the amount to be spent, and monitors the policy’s implementation.

The 2% CSR Spending Rule
Section 135(5) requires qualifying companies to spend at least 2% of their average net profits made during the three immediately preceding financial years on CSR activities. Net profits are calculated as per Section 198 of the Act. If a company fails to spend the required amount, the Board must specify the reasons in its annual report. Unspent amounts must be transferred to a fund specified in Schedule VII or, for ongoing projects, to a special “Unspent CSR Account” within prescribed timelines, with penalties for default.

Administrative and Reporting Requirements
Administrative overheads for CSR cannot exceed 5% of total CSR expenditure. Any surplus from CSR activities must not form part of business profits and must be reinvested in CSR. Companies must disclose the composition of their CSR Committee and details of CSR activities in the Board’s Report under Section 134(3).

Schedule VII: Eligible CSR Activities
Schedule VII provides an illustrative list of activities for CSR spending, including:

Eradicating hunger, poverty, and malnutrition; promoting health care and sanitation; safe drinking water.
Promoting education, including special education and employment-enhancing vocational skills, especially among children, women, the elderly, and the differently abled; livelihood enhancement projects.
Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; old age homes, day care centers; reducing inequalities faced by socially and economically backward groups.
Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining the quality of soil, air, and water.
Protection of national heritage, art, and culture, including restoration of buildings and sites of historical importance; setting up public libraries; promotion and development of traditional arts and handicrafts.
Measures for the benefit of armed forces veterans, war widows, and their dependents.
Training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.
Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief, welfare of Scheduled Castes, Scheduled Tribes, other backward classes, minorities, and women.
Contributions to incubators or R&D projects in science, technology, engineering, and medicine, funded by government bodies or public institutions.
Contributions to public-funded universities, IITs, and national research bodies such as DRDO, ICAR, CSIR, and others.
Rural development projects.
Slum area development.
Disaster management, including relief, rehabilitation, and reconstruction activities.

Failure to comply with CSR spending and transfer requirements attracts monetary penalties for both the company and responsible officers.

3. SEBI Regulations (Listing Obligations and Disclosure Requirements—LODR, 2015)
The LODR Regulations, 2015, issued by the Securities and Exchange Board of India (SEBI), establish comprehensive requirements for the governance and disclosure practices of listed companies. They mandate board composition standards, including the presence of independent directors and mandatory committees such as audit and nomination committees. The regulations require prompt disclosure of material events, transparent reporting of related party transactions, and maintenance of a functional company website with investor information.

4. Business Responsibility and Sustainability Reporting (BRSR, BRSR Core)

BRSR (2021):
The BRSR framework, introduced by SEBI, requires the top 1,000 listed companies to disclose their performance on a broad set of ESG indicators, based on the National Guidelines for Responsible Business Conduct (NGRBC). The disclosures cover areas such as ethics, transparency, employee well-being, stakeholder engagement, human rights, environmental stewardship, inclusive development, consumer welfare, and policy advocacy. The aim is to promote responsible business practices and facilitate informed decision-making by investors and stakeholders.
BRSR Core (2023):
BRSR Core is a streamlined subset of the full BRSR, focusing on a core set of key ESG performance indicators tailored for the Indian context. It introduces phased assurance requirements for the top listed companies and their value chain partners, enhancing the reliability and comparability of ESG disclosures. The framework is designed to facilitate benchmarking and assurance, and to drive continuous improvement in ESG performance.

5. Anti-Corruption and Money Laundering Laws

Prevention of Corruption Act, 1988:
This Act criminalizes bribery and corruption in public and private sector transactions, prescribing stringent penalties for offenders. It empowers authorities to investigate and prosecute corruption cases, and provides for the confiscation of ill-gotten assets.
Prevention of Money Laundering Act, 2002:
The Act establishes a legal framework to prevent and penalize money laundering, requiring regulated entities to maintain records, conduct due diligence, and report suspicious transactions. It provides for the attachment and confiscation of proceeds of crime, and empowers enforcement agencies to investigate and prosecute offenders.

If you want me to add anything I’ve missed, please leave a comment about it, and I’ll work on it. Thanks.

References:

MCA eBooks and Acts
Law.Asia: ESG Compliance Overview
India Briefing: ESG Reporting Mandates
Nishith Desai: ESG Laws and Regulations
KPMG: SEBI BRSR Core Changes
The various laws in their most recent avatars that can be found on GOI websites.

Share this:

Share this:

Share this:

Share this:

Share this: