The Standing Committee on Finance has proposed establishing an ESG oversight body within the Ministry of Finance.
The committee is integrating ESG considerations into the financial regulatory framework to enhance investor confidence and ensure long-term economic stability.
The proposal emphasizes the significance of a centralized framework to oversee and direct ESG disclosures, ensuring that businesses follow transparent and ethical procedures.
The committee advocates for a unified framework to oversee ESG disclosures, promoting responsible practices and compliance through a central authority.
The initiative aligns with global regulatory bodies’ increasing focus on ESG factors to mitigate climate change and social inequalities risks.
However, it must be noted that SEBI formed an advisory committee on ESG in the securities market in 2022.
The committee includes members from various organizations, including HDFC Mutual Fund, Mahindra Group, NTPC, Axis Bank, TATA Chemicals, HCL Technologies, Cipla Ltd., and users of sustainability reports.
The committee’s terms of reference include enhancements in the Business Responsibility and Sustainability Report (BRSR), review of leadership indicators, development of sector-specific sustainability disclosures, evolving disclosures relevant to the Indian context, and identifying areas for assurance and a roadmap for implementation.
It focuses on ESG ratings, focusing on emerging markets, and ESG investing, focusing on mitigation of misselling and greenwashing risks. It also examines the need for prudential norms for ESG funds and plans to prescribe ESG disclosures for all Mutual Fund schemes.
The Ministry of Finance’s ESG oversight body will complement SEBI’s focus on capital markets and the securities sector. This body could address broader financial policy and regulatory oversight for sustainable finance, including green bonds, sustainable lending, and climate risk management.
The Ministry is expected to develop a national sustainable finance strategy, promote sustainable investment, manage climate risk, encourage sustainable lending, harmonize ESG regulations, ensure ESG disclosure accuracy, and introduce penalties for greenwashing.
This would provide a broader scope, better coordination across government agencies, and the ability to develop and implement national sustainable finance policies and strategies.
