Will review ESG disclosures for listed firms, says SEBI chairman

Review comes after industry raised concerns about reporting requirements.

Mumbai: The Securities and Exchange Board of India (SEBI) market regulator is rethinking sustainability or Environmental, social, and governance (ESG) disclosures required of listed firms including its already delayed plans for companies to include supply chains in their reporting, its new chief Tuhin Kanta Pandey said.

The review, which follows concerns raised by the industry on reporting requirements on environment, labour and other issues that it believes are onerous, could focus on easing disclosures for smaller firms, a source familiar with the regulator's thinking said.

The person declined to be identified as discussions are private. SEBI's review follows similar moves on ESG in other parts of the world. The European Commission in February proposed rules to exempt thousands of smaller European businesses from EU sustainability reporting rules, while US President Donald Trump has pushed back against ESG requirements.

India has fared poorly on ESG scores, with Moody's Ratings classifying the country in the high risk category on environment and social factors.

SEBI has mandated ESG disclosures from the top 1000 listed companies by market capitalisation since 2022-23.

In July 2023, SEBI asked the largest 250 firms to start disclosing sustainability metrics for 75% of their supply chain partners along with an assurance of their accuracy from fiscal year 2025-26.

SEBI eased some of the requirements for supply chain disclosures in May 2024 and, after industry raised concerns about their ability to provide the necessary information, in December extended the deadline by a year.

"The disclosures have to be honest disclosures and there has to be a capacity to measure (accurately). Because if they turn out to be only paper disclosures or false disclosures, then it is going to create another set of problems," Pandey said in an interview.

The regulator will work with industry to ensure capacity to measure sustainability accurately is developed and provide adequate time for firms to comply, Pandey said.

SEBI's review of its mandated disclosures has not been previously reported. Pandey, who took over as SEBI chairman in March, did not say whether the final rules would be less demanding or what form they would take.

A spokesperson for SEBI did not immediately respond to an email seeking details on the review.

The review is due to start next month, the source said.

Pandey said the regulator will follow a principle of "optimal regulations". This approach will prompt a relook at required disclosures in a number of categories, including ESG and transactions between interconnected entities known as "related parties", Pandey said.

"Rather than taking a sledgehammer approach, we should be more fine-tuned (in regulations)," he said.

Pandey's predecessor Madhabi Puri Buch had significantly raised disclosure requirements for investors, fund houses and listed firms.

SEBI is also reviewing the nearly 800 responses it received from investors on new proposals that sought to change the manner in which open interest on derivative positions is measured, Pandey said.

The measures, meant to manage risk in the country's booming derivative markets, could "dampen market liquidity, increase trading costs, and introduce operational complexities", the Futures' Industry Association had said in response to the proposals released in February.

Some "guardrails" are necessary but the regulator would like to see the derivatives market in India continue to develop, said Pandey.