Making disclosures effective

Regulatory initiatives to build the legal frameworks around environmental, social and governance disclosures in India, while nascent, are not of recent origin. Various regulators have gradually introduced requirements aimed at enhancing transparency and fostering corporate responsibility. This article examines these evolving ESG disclosure frameworks as implemented by the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the International Financial Services Centres Authority (IFSCA). It further analyzes the regulatory gaps that these initiatives seek to fill, and proposes solutions to enhance these frameworks.

SEBI Mandates

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SEBI introduced a set of expansive ESG reporting requirements for certain listed entities titled the ‘Business Responsibility and Sustainability Report’, in 2021, which were later consolidated and supplemented in 2023. These are mandatorily applicable for the top 1,000 listed entities by market capitalization (including both companies and financial institutions), while other listed entities may report voluntarily. These entities must disclose essential indicators such as sustainable sourcing, energy consumption, and Scope 1 and 2 greenhouse gas emissions, with certain leadership indicators like Scope 3 emissions and environmental/social risks reported voluntarily.

SEBI later expanded these standards by introducing additional disclosures. Starting FY25-26, the top 250 listed entities will need to report on their value chain, covering upstream and downstream partners that make up at least 2 per cent of their purchases and sales. These entities must also provide reasonable assurances, assessed by third-party evaluators, based on standards developed by the Industry Standards Forum. Additionally, companies will be required to disclose green credits generated or procured by their top value chain partners. This aligns with the Green Credit Programme under the Green Credit Rules, 2023, aimed at promoting environmentally positive actions and restoring forest ecosystems. Recently, the SEBI Chairman announced that SEBI is re-examining the business responsibility and sustainability reporting standards to promote qualitative disclosures and reduce compliance burden on companies.

In December 2024, SEBI expanded the scope of the sustainable finance framework in the Indian securities markets by amending the regulations relating to the issue and listing of debt securities. Among other changes, SEBI has updated, and seemingly inadvertently, removed disclosure requirements for the issuance of green debt securities in India. The amendment omits certain chapters of the regulations that had previously proposed initial disclosure requirements to be made in offer documents, certain disclosures on a continuous basis in financial statements and annual reports, protective measures to address the issue of green-washing, and additional disclosure requirements for issue of transition bonds.

SEBI has instead inserted a new provision which requires issuers of ESG debt securities to comply with conditions specified by SEBI, which has not yet been done. As such, there now exists a gap in the disclosure framework for green debt securities.

RBI Mandates

In contrast to the broad-based disclosure requirements of SEBI, RBI seems to be following a more focused approach for ESG disclosures. Last year, RBI issued the draft ‘Disclosure Framework on Climate-related Financial Risks, 2024’ (Climate Framework) inviting comments to address the need for better, consistent and comparable disclosures for early assessment of climate-related financial risks and opportunities by certain entities regulated by RBI.

In contrast to the SEBI mandates described above which apply to a broader set of listed entities, the Climate Framework applies only to specific regulated entities (Specified REs) such as certain scheduled commercial banks, certain urban co-operative banks (UCBs), all-India financial institutions, and some top and upper layer non-banking financial companies. It also extends to foreign banks operating in India, but with limited disclosure requirements.

Compliance with the Climate Framework is mandatory for the Specified REs and voluntary for other regulated entities. It aligns with global standards, drawing on the Task Force on Climate-Related Financial Disclosures established by the Financial Stability Board in 2015. It recognizes climate change as a significant financial risk, encompassing both physical risks (from extreme weather events) and transition risks (from the shift to a carbon-neutral economy).

The Climate Framework mandates disclosures in four key areas: governance, strategy, risk management, and metrics/targets. The disclosures cover governance processes related to climate risk management, strategies for addressing climate risks across various timeframes, and methodologies for identifying and assessing these risks. Specified REs must, at a minimum, disclose baseline information, with some entities required to provide enhanced disclosures. Scheduled commercial banks, all-India financial institutions, and specified NBFCs must report both baseline and enhanced information, while UCBs can report enhanced information on a voluntary basis.

RBI also released a ‘Framework for acceptance of Green Deposits’ in April 2023 (effective from June 2023) which allows certain regulated entities (i.e., the scheduled commercial banks specified above, small finance banks, and all deposit-taking NBFCs) to accept green deposits, which contains certain disclosure requirements to protect stakeholder interests and help raise capital to flow to green projects and activities.

The regulated entity is required to place a review report before its board of directors within three months of the end of the financial year, disclosing green deposits raised, funds allocated to green projects and third-party verification details. Such an entity is also required to make appropriate disclosures in its annual financial statements regarding the use of funds raised from green deposits at the portfolio-level, including information on the cumulative capital raised by it from the time it started accepting green deposits as well as the relevant sector in which such funds have been used.

IFSCA Mandate

The IFSCA has also issued guidance under the IFSCA (Fund Management) Regulations, 2022 (amended and replaced in 2025) for certain fund management entities (FMEs) operating in international financial services centres in relation to disclosures for ESG schemes.

FMEs with assets exceeding USD 3 billion are required to disclose in their annual reports how they identify, assess, and manage sustainability-related risks, and how these are integrated into their investment strategies. Such FMEs must also establish governance policies for managing such risks and comply with additional sustainability requirements set by the IFSCA. ESG schemes launched by FMEs must fully disclose their investment objectives, policies, risks, and benchmarks, with annual disclosures on ESG performance. These disclosures are mandatory, with FMEs required to outline the risks associated with pursuing ESG objectives and their risk management practices.

Similar to SEBI mandates, the IFSCA mandates additional disclosures for ESG-labelled debt securities issued or listed in IFSCs to prevent greenwashing. Continuous monitoring and disclosure of the environmental impact of financed projects are required, including performance indicators and progress towards sustainability goals. This ensures transparency in the issuance of green debt securities and helps stakeholders assess their actual ESG impact.

There is significant discourse on the need for disclosure of climate associated risks and financial metrics, particularly for banks and other financial institutions. Such risks have the potential to have a far-reaching impact on financial markets, including higher credit risk for firms, price volatility, broken supply chains, and increased risk of default in both the wholesale and retail portfolios of banks.

The Climate Framework would, if finalized and implemented, provide significant benefits, particularly in standardizing climate-related financial disclosures for Specified REs. Integrating these disclosures into regular financial reporting helps enhance transparency, which facilitates shareholder engagement and broader participation in climate risk management. The Climate Framework’s focus on governance, strategy, and climate-related targets allows stakeholders, including investors and insurers, to better understand a Specified RE’s approach to managing climate risks and its potential for achieving risk-adjusted returns. This, in turn, will help regulated entities play a crucial role in financing the transition to a sustainable economy by providing credible and reliable data for informed decision-making.

Unlike SEBI and IFSCA mandates, which focus primarily on broader ESG disclosures, the Climate Framework sets a novel and more comprehensive standard by focusing on climate disclosures. Accordingly, it appears to fill the gaps both in terms of the size and contribution of the institutions, as well as the nature and quality of the disclosures required to be made.

However, a key gap in the Climate Framework is its limited applicability, as it currently applies only to Specified REs, leaving out a broader range of financial institutions and entities that may also face significant climate-related risks. This in turn highlights the need for other regulators like SEBI and IFSCA to potentially extend their mandates to specifically address climate risk disclosures, filling the existing gap and offering a more holistic view of climate impacts across industries.

Another notable difference is the Climate Framework’s requirement for standalone disclosures, which enhances comparability and standardization, especially when compared to SEBI’s approach of consolidated reporting. This focus on standalone disclosures improves the quality and scope of the data, making it easier to assess the specific climate risks associated with individual entities, regardless of their diversified operations.

While the Climate Framework offers enhanced reporting and transparency, there are areas for improvement. The lack of third-party verification, as seen in SEBI and IFSCA mandates, could be addressed by RBI to further ensure the credibility and accuracy of the disclosures. Additionally, the implementation of the Climate Framework will require substantial preparation from Specified REs. Accordingly, given that these requirements would be mandatory, it is recommended that Specified REs begin such processes well in advance to avoid future penalties for non-compliance.

The RBI’s October 2024 monetary policy statement acknowledges the challenges in implementing reporting standards due to a lack of high-quality data on local climate scenarios, forecasts, and emissions. Similarly, SEBI has committed to reviewing its mandates following industry feedback about difficulties in meeting broad requirements and the absence of reliable data. To address this, RBI plans to establish the Climate Risk Information System ‘RBI-CRIS’, which will include a public directory and a phased data portal for regulated entities. While details are still under development, such a system could significantly ease the compliance burden for regulated entities under the Climate Framework. A similar inter-regulatory approach between the RBI, SEBI, and IFSCA for entities under these frameworks could facilitate better information sharing, creating high-quality datasets for disclosure. Such an approach would ease the compliance burden on entities which are covered by these reporting standards, and further enable such entities to focus on making more comprehensive and high-quality disclosures.

The writers are, respectively, a partner at S&R Associates, Mumbai with a JD degree from New York University, a Partner at S&R Associates, New Delhi, with an LLM degree from the London School of Economics and Political Science, and a Senior Associate at S&R Associates, New Delhi, with a law degree from the University of Oxford.