On June 14, 2023, the SEBI tightened governance requirements for listed entities by amending the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. One of the key changes brought about by the SEBI is to the disclosure regime under Regulation 30 of the LODR Regulations, which will become effective on July 14, 2023. This note discusses these changes and their implications.
On June 14, 2023, the SEBI introduced certain amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including in relation to disclosure of agreements entered into by or in relation to listed companies and approval by shareholders for special rights granted to shareholders.
While the amendments aim to create a more robust compliance framework and increase transparency and accountability of listed entities, they are likely to lead to additional compliance burden for listed entities and reduce flexibility to shareholders to enter into inter-se arrangements.
In February, SEBI released a consultation paper on disclosures, ratings, and investing related to ESG, pursuant to which an assurance-driven reporting regime based on key ESG attributes (“BRSR Core”) may be introduced soon.
BRSR Core is intended to represent a focused subset of the Business Responsibility and Sustainability Reporting (“BRSR”) framework, which SEBI had introduced in May 2021 as a voluntary disclosure regime in lieu of the erstwhile Business Responsibility Reporting (“BRR”) paradigm. The main motivation behind introducing the BRSR framework was to ensure quantitative, standardized disclosures on ESG-linked parameters. While until FY 21-22, the top 1,000 listed companies in India by market capitalization could make disclosures under this framework on a voluntary basis, such disclosures are compulsory from FY 22-23.
This article provides an overview of category-wise BRSR compliance requirements. Further, it highlights some of the benefits and opportunities, along with potential legal risks, associated with such disclosures. The article also discusses some of the concerns and innovations related to the BRSR Core framework, including in light of SEBI’s proposals with respect to adjusting intensity ratios for country-level purchasing power parity and extending disclosure requirements to corporate supply chains.
This note provides an overview of the amendments that were issued on February 14, 2023 by the Securities and Exchange Board of India to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014. The amendments primarily introduce governance-related requirements for investment managers of InvITs and REITs and apply to all InvITs and REITs, including those proposing to register or list. The amendments also include certain requirements with respect to the appointment of auditors of InvITs and REITs, limited review of the accounts of assets of InvITs and REITs and the treatment of unclaimed distributions. Clarifications in relation to the calculation of leverage thresholds and the definition of change in control under the regulations are also part of the amendments. The governance norms and the clarifications to the definition of change in control are effective from April 1, 2023 and the other provisions are effective immediately.
In the US and elsewhere, ‘virtual’ power purchase agreements (VPPAs) have appealed to a wide variety of corporate buyers, including for the purpose of meeting renewable energy (RE) targets quickly. Further, compliance with ‘green’ mandates by procuring renewables through a VPPA has become an important element of business branding across the world. With regard to India, too, recent reports suggest that VPPAs are essential to meet corporate needs and wants, particularly in the country’s expanding commerce and industry (C&I) segment.
However, in response to investor demand with respect to environment, social, and governance (ESG) standards, if a company seeks to shift completely to RE, it may not be able to do so for various reasons, including on account of inherent risks in RE generation. Further, ‘physical’ PPAs are not viable for projects below a logistical minimum. Accordingly, C&I consumers with lower load requirements and/or fragmented demand may not yet have a cost-effective mechanism to procure RE, despite India’s newly democratized ‘open access’ regime. In this regard, VPPAs may still be the answer.
Nevertheless, given that your company needs/wants to acquire or generate RE – should, and can, you enter into a VPPA in India?
‘Corporate’ Power Purchase Agreements (PPAs) – as opposed to traditional models of energy procurement by state-owned electricity distribution companies – have proliferated over the past few years. With respect to renewable energy (RE) in particular, India appears to have witnessed one of the largest spikes in the world. Why are so many corporate PPAs getting signed here? Why now, and why specifically with respect to RE? Will this trend continue, and if so, what are the things to look out for? This note seeks to address such questions, including in light of recent (and anticipated) legislative and regulatory developments.
ESG ratings and third-party data products have played an important role in the ESG ecosystem so far, especially in the absence of consistent and comparable issuer disclosures. Even though investors are increasingly relying on the ESG ratings to determine a company’s performance on ESG issues and to gauge the ESG related risks, the current rating systems have low reliability due to the lack of transparency and inconsistency in rating methodologies. To address these deficiencies, the International Organization of Securities Commissions (“IOSCO”) tabled a report on ESG Ratings and Data Products Providers (“IOSCO Report”), encouraging individual jurisdictions to adopt a global reporting baseline for investor oriented ESG rating system. The Securities and Exchange Board of India (“SEBI”) has released a consultation paper dated January 24, 2022, on ESG Rating Providers for Securities Markets (“Consultation Paper”) taking into account the recommendations made to the regulators in the IOSCO Report. This note aims at understanding the concept of ESG ratings and the need for their regulation. This note further explains (i) the issues in the current system of ESG ratings being provided by ERPs as identified by SEBI in its Consultation Paper; and (ii) the framework being proposed in the Consultation Paper to develop a legal regime for regulation of ERPs in India.
On June 30, 2022, the Securities and Exchange Board of India (“SEBI”) issued a circular amending the quarterly shareholding pattern disclosed by listed entities in India (the “2022 Circular”). This amended an earlier SEBI circular dated November 30, 2015. The 2022 Circular comes into force with effect from the quarter ending September 30, 2022. Listed entities are required to submit their shareholding pattern to the stock exchanges within 21 days of the end of each quarter in formats prescribed under the circulars. This note discusses certain key changes implemented by the 2022 Circular.
Since the introduction of the concept of independent directors, it has been perceived as an easy remedy to poor corporate governance. Their efficacy in effectively monitoring company management is often taken at face value. Studying recent instances of corporate governance lapses provides an insight into the efficacy of independent directors. To plug gaps, regulators constantly strive to raise the bar on the relevant criteria for determining the independence, and the procedure for the appointment, of independent directors. However, the changes affected do not appear to address the problem at hand. In the United States, unlike in India, shareholders have often pursued derivative claims against independent directors. While these derivative actions are not always successful, they function as an additional check on independent directors’ actions. Derivative actions are also pursued by shareholders in India. However, they: (a) are rarely pursued against independent directors; and (b) typically arise out of situations where directors have committed a fraud on the shareholders rather than when they have simply failed to perform their duties. For independent directors in India to function as an effective check on management, the threat of shareholder action needs to be a real one.
The need for addressing Environmental, Social and Governance (“ESG”) related aspects, has never had more prominence than now. There is growing recognition of the financial and economic impacts of ESG risks across the globe and the investors are increasingly relying on ESG as an important metric to guide their investment decisions. Internationally, regulators and enforcement agencies are taking greater cognizance of ESG related issues and a more stringent view of non-compliances or greenwashing by any business regarding their ESG credentials. The impact of climate change, requirement of good governance and protection of interest of various stakeholders are increasingly forming part of various formal and informal dialogues, particularly in the post COVID era. At the 2021 United Nations Climate Change Conference (“COP-26”) held in Glasgow, United Kingdom, India, along with 196 other countries made enhanced commitments towards mitigating the risks associated with climate change. The recent legal developments have demonstrated that the regulatory landscape for ESG in India has developed at a measured but regular pace and the Indian regulatory authorities are now catching up on the ESG trends that have been ongoing at a global level. With so much being said and done in relation to ESG on a day-to-day basis, it is sometimes difficult to focus on the real issue. This note aims to explain the concept of ESG and provides a brief overview of the Indian regulatory landscape in relation to ESG.