India to Review ESG Disclosures for Listed Companies Amid Industry Pushback

India’s market regulator, the Securities and Exchange Board of India (SEBI), is preparing to revisit its approach to environmental, social, and governance (ESG) disclosures for publicly listed companies. The review is aimed at addressing industry concerns that current sustainability reporting requirements are too demanding, especially for smaller firms, and could potentially lead to inaccurate or superficial compliance.

This development marks the first significant policy shift under SEBI’s new chairman, Tuhin Kanta Pandey, who took over in March 2025. In an interview with Reuters, Pandey said the review would ensure that ESG disclosures are both meaningful and realistically measurable, rather than being reduced to "paper disclosures" that lack integrity.

SEBI’s reassessment comes in the wake of similar actions in global financial markets. The European Commission recently proposed relaxing ESG reporting rules for smaller businesses, and in the United States, former President Donald Trump has continued to oppose mandatory ESG frameworks, framing them as burdensome to business growth.

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India’s ESG Reporting Landscape: What’s at Stake

Since the 2022–23 financial year, India has required the top 1000 companies by market capitalization to disclose ESG performance using a standard framework. However, industry feedback indicates that many firms struggle to accurately track and report on environmental and social metrics, particularly across extensive and often informal supply chains.

The most contentious issue has been SEBI’s 2023 mandate for the top 250 companies to begin reporting ESG data for at least 75% of their supply chain partners. These requirements were scheduled to become effective in fiscal year 2025–26, with an assurance mechanism to validate the disclosures. However, after persistent objections from industry groups, SEBI softened some provisions in May 2024 and eventually extended the deadline by a full year in December.

Pandey emphasized the need to balance ambition with implementation capacity.

“The disclosures have to be honest disclosures and there has to be a capacity to measure accurately,” he said. “Because if they turn out to be only paper disclosures or false disclosures, then it is going to create another set of problems.”

Smaller Firms Could Get Relief

According to a source close to SEBI’s internal discussions, the regulator is likely to focus on easing requirements for mid-sized and small listed companies that may not have the resources or systems to track complex ESG data. While final decisions on new rules haven’t been made, the objective is to adopt an “optimal regulation” model—striking a balance between transparency and operational feasibility.

Pandey noted that the review will begin next month and could involve changes not only to ESG mandates but also to regulations governing “related-party transactions,” another complex area in corporate governance.

“Rather than taking a sledgehammer approach, we should be more fine-tuned in regulations,” Pandey said.

India’s ESG Challenge: High Risk, Low Scores

India currently performs poorly in ESG ratings relative to other major economies. Moody’s Ratings has classified the country as high-risk on environmental and social parameters. While policy frameworks like SEBI’s ESG disclosure mandate were seen as necessary to improve transparency and risk management, concerns have grown about overregulation stifling business competitiveness.

Firms have highlighted the difficulty of collecting reliable data from small vendors and contractors, many of whom operate informally and lack the infrastructure for data reporting.

SEBI’s plan to provide more time for compliance and to support capacity-building efforts could help bridge that gap. However, it also raises questions about how investor confidence in India’s ESG credentials will be maintained amid relaxed or delayed regulations.

What’s Next for SEBI?

Beyond ESG, SEBI is currently reviewing nearly 800 responses it received on its February proposal to revise how open interest in derivatives markets is measured. The move, aimed at improving risk management, drew criticism from industry players who warned that it could increase trading costs and reduce market liquidity.

Pandey acknowledged these concerns, stating that “some guardrails are necessary,” but also emphasized that the regulator wants India’s booming derivatives markets to continue evolving.

As SEBI embarks on its ESG review, the key challenge will be balancing the country’s growing need for global-standard sustainability metrics with the on-the-ground capacity of Indian firms to comply with them.

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