SEBI strengthens ESG norms, mandates safeguards against 'purpose-washing' in green debt securities: Government
New Delhi, August 3
The Securities and Exchange Board of India has strengthened its Environmental, Social and Governance regulatory framework by introducing safeguards against 'purpose-washing' in ESG debt securities, the government informed Parliament on Monday.
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.
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
Reader Comments
This is actually a progressive step. The BRSR being mandatory for the top 1000 companies is a good starting point, but I hope they extend this to more companies soon. India is making real progress in ESG disclosure standards.
One question - how will SEBI actually enforce these rules? We have seen many regulations on paper but ground level compliance is always an issue. Stock exchanges as first-level regulators is fine, but they need proper training and resources. Let's hope this isn't just a token gesture.
As someone who invests in ESG funds, this gives me confidence. Earlier it was impossible to know if companies were genuinely using green funds for environmental projects. With BRSR and mandatory disclosure of rationale by rating providers, retail investors like us can make more informed decisions. 🙌
The concept of 'purpose-washing' being explicitly defined is a major win. Indian financial markets need this kind of regulatory clarity to attract serious foreign investors who are looking for genuine ESG compliance. But the real challenge will be in verifying the actual utilization of funds - that's where most companies will try to game the system.
Only 19 ESG rating providers registered seems very low for a country like India. We need more competition and better quality ratings. Also, these providers should be audited regularly - otherwise they'll just give good ratings to whoever pays them more. #JustSaying
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