New Sebi rules set the stage for formal adoption of ESG from April 1
New rules on good governance will kick in from April 1 as Sebi regulations require the top 1,000 companies ranked by market cap to mandatorily include Business Responsibility and Sustainability Report or BRSR in their annual reports disclosed to stock exchanges. This sets the stage for the formal adoption of Environmental, Social and Governance (ESG) as a metric for measuring corporate performance (or the lack of it).
If the COVID-19 pandemic served as a wake-up call for governments, companies, industry and citizens on the importance of sustainability, BRSR rules have formalised the new governance standard as something critical to ensuring long-term value creation by a firm. Undoubtedly, the onus for this systemic shift in governance lies with all stakeholders.
In the new era, every business will be deeply impacted by environmental, social & governance standards they have adopted. There is growing pressure for transparency and accountability. Success will no longer be measured by bottom line alone. Instead, it will include ESG compliance. The good news is empirical data reveals that companies embracing ESG standards are performing better than their peers. In short, good governance is good business.
Recent corporate history is replete with instances of a whistleblower uncovering infractions, which otherwise may have gone unnoticed. The adoption of BRSR will only enhance the power of whistleblowers in protecting investor interests. In fact, Sebi regulations issued in 2015 require that companies mandate the formulation of a ‘vigil mechanism’ for directors and employees of any listed company to report genuine concerns. The Companies Act, 2013 further adds that every listed company shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances.
Guardrails to ensure compliance such a vigil mechanism require companies adopt standards which may include:
Companies are increasingly adopting to institutionalise whistleblower principles by setting up office of an ombudsperson. Not only are they conscience keepers, but also provide valuable insights for future governance standards. The ombudsperson, also known as ombudsman, ombuds, ethics officer among others, are the ones who assist organisations in managing conflicts and raising concerns in service of an effective and healthy organization.
In today’s evolving times, ombuds are attaining significance in organisations and are being adopted as part of corporate governance overlooking the legal compliance and good governance. They are impartial, confidential and independent resource, help manage risk and navigate complex relationships and work environments. Some of the companies in India that have an ombudsperson include the Jubilant Bhartia Group, Bharti Enterprises, Coca Cola, Accenture, Wipro, Tata Steel, TCS, Godrej, Infosys, Amazon, Ikea Foundation, Pfizer India, Dr Reddy’s, Mahindra group and Flipkart etc.
Appointing an ombudsman is a win-win for the organization as well as stakeholders. Such a program enhances the governance process by incorporating fairness and transparency. This enhances the reputation of the organization in the eyes of regulators, investors, business partners and internationally. In short, it builds a trust quotient for the organisation with all stakeholders. Finally, it lends a voice to stakeholders to raise issues or concerns without fear of recrimination.
So the ombuds is an idea whose time has come.