SEBI strengthens ESG norms, introduces safeguards against 'purpose-washing'

SEBI has strengthened its ESG regulatory framework to combat 'purpose-washing' in debt securities. Finance Minister Nirmala Sitharaman informed Parliament that BRSR reporting is now mandatory for the top 1000 listed companies from FY 2022-23.

The Securities and Exchange Board of India (SEBI) has strengthened its Environmental, Social and Governance (ESG) regulatory framework by introducing safeguards against 'purpose-washing' in ESG debt securities, the government informed Parliament on Monday.

New Disclosures and Reporting Mandates

Finance Minister Nirmala Sitharaman, in a written reply to the Lok Sabha, said ESG debt issuers are required to track and disclose whether the funds raised are being used for the stated environmental and sustainability objectives. She said Business Responsibility and Sustainability Reporting (BRSR) has been made mandatory for the top 1,000 listed companies by market capitalisation from the financial year 2022-23.

The Finance Minister said SEBI has prescribed ESG disclosures based on the nine principles of the National Guidelines on Responsible Business Conduct (NGRBCs) under the BRSR framework. Stock exchanges have been designated as the first-level regulators to monitor these disclosures, while SEBI may take necessary action in case of violations, she added.

Sitharaman said SEBI's framework for ESG debt securities defines 'purpose-washing' as making false, misleading, unsubstantiated or incomplete claims about the purpose for which bonds are issued.

Framework for ESG Rating Providers

To improve transparency in ESG financing, SEBI has also introduced a regulatory framework for ESG Rating Providers (ERPs), making registration with the regulator mandatory for entities providing ESG ratings. The framework requires ESG rating providers to disclose the rationale behind their ratings. Currently, 19 ERPs are registered with SEBI, the Finance Minister said.

It says "To ensure transparency, regulations mandate detailed disclosures of the rationale behind each assigned rating, enabling stakeholders to assess the underlying factors. Currently, there are 19 ERPs registered with SEBI." (ANI)

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