ESG explained for the social sector

ESG stands for environmental, social and governance. It is a way of judging how a business manages its effects on the environment, on people and on its own conduct, and the risks and opportunities those effects create. Investors use it to decide where to put money, regulators use it to make companies disclose what they do, and companies use it to run their business better.

In India, ESG has a firm regulatory shape. The Securities and Exchange Board of India (SEBI) requires the largest listed companies to publish a Business Responsibility and Sustainability Report (BRSR), regulates the agencies that give companies ESG ratings, and sets rules for funds and bonds that call themselves ESG. This guide explains what ESG means, how it works in India, how it differs from corporate social responsibility (CSR), and what it means for NGOs.

What E, S and G mean

The three letters are broad, and different frameworks group the issues in different ways. International frameworks such as GRI, SASB, TCFD and Integrated Reporting are widely used, and India’s BRSR lets companies that already report under them cross-reference those disclosures.

How investors and companies use ESG

Investors use ESG information in several ways. Some exclude whole sectors; some build ESG into their usual analysis; some pick the best performers in each sector; some look for companies whose products or services have a positive impact; and some back companies that are moving towards cleaner business. SEBI’s rules for ESG mutual funds list six such strategies, and every Indian ESG fund must follow one of them.

Lenders, customers and employees use it too. A bank may price a loan by climate risk, a large buyer may require its suppliers to meet labour standards, and graduates may choose employers by their record.

Companies use ESG to find and manage risks before they become crises, to set targets, and to report on their progress to investors and the public.

India’s ESG rules

The BRSR

SEBI introduced the Business Responsibility and Sustainability Report by a circular of 10 May 2021. It was voluntary for 2021-22, and since 2022-23 it has been mandatory for the top 1,000 listed companies by market capitalisation; other listed companies may file one voluntarily. It reports a company’s performance against the nine principles of the National Guidelines on Responsible Business Conduct, from ethics and the well-being of employees to human rights, the environment and inclusive growth. Each principle has essential indicators, which are mandatory, and leadership indicators, which are voluntary. Our guide to the BRSR explains the format in full.

BRSR Core and assurance

BRSR Core is a subset of the BRSR: key indicators under nine ESG attributes, including some chosen for India, such as jobs created in small towns, the openness of the business and the gross wages paid to women. Since a SEBI circular of 28 March 2025, BRSR Core must be independently assessed or assured, in phases:

The assessor or assurer must have the expertise and mustn’t sell the company other services, such as consulting. Disclosures about a company’s value chain, its larger suppliers and customers, are voluntary for the top 250 from 2025-26.

ESG rating providers

Companies that give ESG ratings, called ESG rating providers, have been regulated by SEBI since 4 July 2023, under the SEBI (Credit Rating Agencies) Regulations, 1999. Once a company’s BRSR Core is available, a provider must also offer a Core ESG Rating based only on data that a third party has assured or audited, alongside a Core Transition (Parivartan) Score and a Core Combined Score. Providers are paid either by the investors who subscribe to their ratings or by the companies they rate.

ESG funds and ESG bonds

ESG mutual funds are a sub-category of thematic equity schemes. Each must follow one of SEBI’s six strategies: exclusion; integration; best-in-class and positive screening; impact investing; sustainable objectives; or transition. At least 80% of its assets must be in shares that fit its strategy, and at least 65% in companies that publish a comprehensive BRSR and have BRSR Core assurance. Funds must disclose the ESG scores of their holdings and how they vote.

For debt, since 5 June 2025 a company may label its bonds as social bonds, sustainability bonds or sustainability-linked bonds only if the money is used as SEBI’s definitions require.

ESG and CSR: different things that meet

The two are easy to confuse, and mixing them up causes real problems.

They meet in the BRSR. Its Section A asks every filing company whether CSR applies to it under Section 135, which is mandatory. Under Principle 8, inclusive growth, the questions on CSR projects in aspirational districts and on the beneficiaries of each CSR project, with the share from vulnerable and marginalised groups, are voluntary leadership indicators.

What ESG means for NGOs

The “S” in ESG is where NGOs come in. Companies need to understand, and report on, the people affected by their business: communities near their sites, workers in their supply chains, small producers they buy from and the customers they serve. Under the BRSR’s Principle 8, the essential indicators ask about social impact assessments required by law, rehabilitation and resettlement, community grievance mechanisms, and how much a company buys from small producers. Other principles ask about the well-being of workers in the value chain and about human rights.

That opens doors for NGOs with deep community roots:

• Community engagement and grievances: helping companies hear from communities and act on what they hear.
• Worker welfare in supply chains, such as health, safety and financial literacy programmes.
• Livelihoods with small producers who supply companies.
• Independent data: surveys and studies that companies can’t credibly do themselves.

Keep two things clear. First, ask whether a company wants CSR (a project funded from its CSR budget) or ESG support (help with its own business conduct): they come from different budgets, under different contracts and rules. Second, keep your independence. Your value to communities depends on not becoming a company’s public relations, so agree in writing what you will report and how. For prospect research, a company’s BRSR is a rich source: see finding the right CSR partner.

The criticisms, and how India’s rules respond

ESG has real critics, and their points are worth knowing.

• Ratings disagree. Different providers weigh issues differently, so one company can score well with one and badly with another. SEBI’s response is the Core ESG Rating, built only on assured or audited data.
• Labels without substance. Funds and bonds can call themselves green or social without much behind the label, which is called greenwashing. SEBI’s fund rules (80% and 65%) and its bond labelling rules are meant to stop that.
• Data you can’t trust. Much ESG data is reported by companies about themselves. BRSR Core’s assessment or assurance, by assessors who can’t also be the company’s consultants, is meant to fix this.
• Risk to whom? ESG often asks how sustainability issues affect a company’s finances, while communities care how the company affects them. Good reporting covers both.
• Box-ticking. Long reports can hide what matters. The best reports focus on the few issues that matter most to the business and the people it affects.

Common mistakes

• Saying ESG is just another name for CSR.
• Saying every listed company files a BRSR: the top 1,000 must; others may.
• Treating the BRSR’s questions on CSR beneficiaries and aspirational districts as mandatory: they are voluntary leadership indicators.
• Saying value chain disclosure is mandatory: for the top 250 it is voluntary from 2025-26.
• Counting CSR spending as a sign of good ESG performance.

The Academy’s SDGs and India course explains how the BRSR and investors connect to the Sustainable Development Goals, which our guide to CSR and the SDGs also covers.