OPINION: What is driving sustainability reporting

What is Driving Sustainability Reporting?

Sustainability reporting has become a cornerstone of corporate accountability. Growing pressure from stakeholders has catalysed the development of comprehensive sustainability reporting standards, enabling businesses to align with global expectations while addressing risks.

How is Reporting Globally Blooming?

Globally, sustainability reporting has made significant strides. The International Sustainability Standards Board (ISSB) introduced IFRS S1 and S2 in 2023, offering a unified framework for financial disclosures related to climate risks and opportunities. Similarly, the Corporate Sustainability Reporting Directive (CSRD) mandates nearly 50,000 EU companies to disclose detailed ESG data by

2025. This directive incorporates double materiality assessments, requiring companies to evaluate both the financial impacts of sustainability issues and their broader societal and environmental effects. Additionally, the Global Reporting Initiative (GRI) remains a leading framework globally, with over 10,000 organisations adopting its standards to enhance transparency across diverse ESG metrics.

India’s progress towards Global alignment

In India, sustainability reporting is evolving but lags global counterparts. The Business Responsibility and Sustainability Reporting (BRSR) framework introduced by SEBI has aligned Indian companies with international standards. However, India Inc.’s preparedness levels are low on ESG compliance.

According to Deloitte’s 2023 ESG Preparedness Survey:

– Only 27% of Indian organisations feel adequately equipped to meet compliance requirements.

– While 68% financial services firms report awareness of ESG regulations, only 25% in consumer sectors demonstrate similar familiarity.

– Alarmingly, only 7% consumer sector companies report robust preparedness for ESG compliance.

A content analysis comparing BRSR with global frameworks like GRI reveals a 52.30% similarity. It identifies areas where BRSR is more informative (18 factors) and areas needing refinement (7 factors). Despite these challenges, 77% Indian companies prefer BRSR due to its simplicity, while only 23% opt for consolidated reporting.

Current Challenges Faced in Sustainability Reporting in India

Despite progress in sustainability reporting, systemic challenges hinder effective implementation in India:

1. Lack of Awareness and Preparedness:

Many organisations are unfamiliar with existing ESG regulations and frameworks, leading to inconsistent reporting practices. Awareness varies significantly across sectors; for instance, the financial services sector demonstrates higher readiness compared to consumer industries.

2. Supply Chain Complexities:

Companies struggle to collect and disclose ESG-related data from their supply chains. Only 15% organisations believe suppliers are prepared to meet ESG requirements leading to misalignment.

3. Resource-Intensive Reporting Processes:

Sustainability reporting demands significant time and financial resources for data collection systems, staff training, report preparation, and independent verification, making it costly and time-consuming. for many businesses.

The above challenges are merely the tip of the iceberg, and the devil lies in detail which could vary from industry to industry. Automation could be a key ask and requirement of the hour.

How Does Sustainability Reporting Drive the Corporate Sustainability Agenda?

Comprehensive sustainability reporting can be a transformative tool that drives corporate accountability and fosters systemic change. By rigorously disclosing ESG impacts, organisations can align their strategies with broader societal goals such as addressing climate change and reducing inequality. Reporting allows corporates to understand the real impact of the initiatives and course correct. This level of accountability enables businesses to identify risks and opportunities essential for long-term resilience while positioning themselves as leaders in the transition to a sustainable economy. The push from stakeholders towards reporting promotes comparability and access to a wider stakeholder audience.

How the Union Budget can help navigate through these challenges

1. Target-oriented strategy and reporting:

While many corporates have undertaken sustainability measures, the overall impact must remain the end goal. Some corporates engage in ‘greenwashing,’ making misleading claims without tangible outcomes. According to ASCI, 79% of environmental claims are misleading, and 62% of personal care consumers have encountered false claims, such as products being 100% natural or eco-friendly. The Government could promote corporates to implement, monitor, and disclose impacts, fostering trust and transparency. Swift action against misleading practices could further help.

2. Significant push to combat climate change:

The Indian Government has taken commendable steps to address climate change, with a strong push in the solar sector being a key focus. However, despite achieving a solar capacity of 84 GW as of May 2024 (Press Information Bureau data), the country is still behind on its 2030 targets. The upcoming Union Budget could play a pivotal role by allocating resources for robust planning,

effective execution, and fostering public-private collaborations to accelerate progress.

Additionally, the carbon credit trading scheme introduced in 2023 is a critical step toward building compliance and voluntary carbon markets. With the compliance segment expected to launch in FY26, the Government should prioritise investments in research and development to establish a globally competitive carbon market.

3. Push for sustainable investment:

India has shown resilience post-COVID-19. Achieving net-zero by 2070 requires USD 8-10 trillion. Between 2012 and 2020, India introduced six ESG funds, and according to IBEF, the number grew to 11 by 2024, with AUM increasing from USD 331.4 mn in Jan 2020 to USD 1,176.6 mn in March 2024. Local and State Governments raised USD 21 bn through green bonds by Feb 2023, accounting for 2.2% of global figures. With green funding potentially reaching USD 3.7 trn by 2030, standardised data infrastructure is critical for sustainable investments and ESG compliance.

As the interest in ESG-compliant Indian companies continue to rise, it is imperative that a complete infrastructure be provided for industry to grow and at the same time the investors are provided with standardised and dependable data. It would be important that the Government introduces steps towards strengthening the push towards sustainability through the capital markets.

[This piece was written by Pratiq Shah, Chartered Accountant, Deloitte Haskins & Sells LLP, and Nikhil Poddar, Chartered Accountant, Deloitte Haskins & Sells LLP]