Regulatory updates

The Securities and Exchange Board of India (SEBI) in its board meeting dated 29 March 2023 approved certain key proposals. Following are the key takeaways:

• Balanced framework for ESG disclosures, ratings and investing: In February 2023, SEBI had released a consultation paper on Environmental Social Governance (ESG) disclosures, ratings and investing (the consultation paper). The consultation paper had proposed the development of the Business Responsibility and Sustainability Reporting (BRSR) Core framework, which would be subject to mandatory reasonable assurance for the listed entities, as specified in this regard. This proposal has now been approved in the SEBI board meeting. It has been provided that corresponding amendments would be required to be made in the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 (LODR Regulations) and SEBI (Mutual Funds) Regulations, 1996 (MF Regulations) to facilitate a balanced approach to ESG. Some of the important amendments proposed include:
  1. ESG BRSR Core: It has been provided that the BRSR Core framework would be applicable for the top 150 listed entities (by market capitalisation) from FY 2023-24 and gradually the applicability would be extended to the top 1,000 listed entities by FY 2026-27.
  1. ESG disclosures for value chain of listed entities: SEBI observed that many companies have significant ESG footprints in their value chain process. Accordingly, the consultation paper had proposed ESG disclosures and assurance on the BRSR Core framework for the value chain of listed entities. In this regard, it has now been provided that the disclosure and assurance requirements would be applicable to the top 250 listed entities (by market capitalisation), on a comply-or-explain basis from FY 2024-25 and FY 2025-26 respectively.
  1. ESG rating: It has been provided that the ESG Rating Providers (ERPs) must consider India/emerging market parameters while providing ESG Ratings. They should also offer a separate category of ESG rating known as the ‘Core ESG Rating’ , which would be based on the assured parameters under BRSR Core.
  1. ESG investing: In order to address the risk of mis-selling and greenwashing, SEBI has introduced measures to enhance the reporting requirements for promoting ESG investing. The key measures introduced include the following:

1. ESG schemes would be mandatorily required to invest at least 65 per cent of Asset Under Management (AUM) in listed entities where assurance on BRSR Core is undertaken
2. Mandatory third-party assurance and certification would be required by the board of Asset Management Companies (AMCs) on compliance with objective of the ESG scheme
3. Mandating enhanced disclosures on voting decisions with specific focus on ESG factors
4. Mandating disclosure of fund manager commentary and case studies on how ESG strategy is applied on funds/investments
5. Introduction of a new scheme category and enabling the launch of multiple schemes on ESG related factors.

• Establishing a regulatory framework for ERPs: In February 2022, SEBI had issued a consultation paper on the regulatory framework for ERPs in the securities market. In this regard, SEBI has now approved the proposal to introduce a regulatory framework for ERPs by introducing a new chapter in the SEBI (Credit Rating Agencies) Regulations, 1999 (CRA Regulations). The introduction of this chapter would inter alia result in the following:

1. Enhanced transparency in ESG rating rationales
2. Measures to mitigate conflict of interest by ERPs
3. Facilitate augmentation of transition finance in India, and
4. Facilitate ESG ratings based on assured data.

• Amendments to the SEBI LODR Regulations to facilitate comprehensive and timely disclosures
  1. Disclosure of material events or information: Following amendments have been approved to bring transparency and ensure timely disclosure of material events or information by listed entities:

1. Material events: Introduction of a quantitative threshold for determining ‘materiality’ of events/information
2. Stricter timelines for disclosure of information: The stricter timelines for disclosure of information is given as below:

• Material events/information for which decisions have been taken in the meeting of the board of directors, should be disclosed within 30 minutes (earlier, this was required to be done within 24 hours).
• Material events/information emanating from within the listed entity, should be disclosed within 12 hours (earlier, this was required to be disclosed within 24 hours).

• Market rumours: Market rumours to be verified and confirmed, denied or clarified, as the case may be, by top 100 listed entities by market capitalisation (effective 1 October 2023) and by top 250 listed entities (effective 1 April 2024)
• Binding agreements: Disclosure of certain types of agreements binding listed entities would be mandatory.

• Strengthening corporate governance at listed entities by empowering shareholders: In February 2022, SEBI issued a consultation paper on strengthening corporate governance for listed entities by empowering shareholders. In this regard, following amendments have now been approved by SEBI:

• Perpetuity of special rights: In order to address the issue of perpetuity of special rights, periodic approval by shareholders would be required for any special right granted to a shareholder of a listed entity
• Sale, lease or disposal of an undertaking: The extant mechanism of sale, lease or disposal of an undertaking of a listed entity outside the ‘scheme of arrangement’ framework is to be further strengthened
• Permanent board seats: In order to do away with practice of permanent board seats, periodic approval by shareholders would be required for any director serving on the board of a listed entity.

• Streamlining timeline for submission of first financial results by newly listed entities: In February 2022, SEBI issued a consultation paper on streamlining disclosures by listed entities and strengthening compliance with the LODR Regulations. Accordingly, in order to overcome the challenges in immediate submission of financial results post listing and to ensure that there is no omission in submission of financial results, SEBI has approved the streamlining of the timeline for submission of first financial results by newly listed entities.

• Timeline to fill up vacancy of directors and other officials of listed entities: Listed entities are now required to fill up the vacancy of directors, a compliance officer, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) within a period of three months from the date of such vacancy, to ensure that such critical positions are not kept vacant.

• Amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) In February 2022, SEBI had issued a consultation paper on amendments to the ICDR Regulations, with the objective of increasing transparency and streamlining certain processes. In this regard, SEBI has approved the following amendments to the ICDR Regulations:
  1. Disclosures regarding underwriting: If an issuer has entered into an underwriting agreement to cover shortfall in demand or to cover subscription risk, then the same should be disclosed in the offer document prior to opening of an issue
  1. Bonus issue: A listed entity can announce bonus issue of shares, only after obtaining approval from the stock exchange(s) for listing and trading of all the pre-bonus securities issued by it. Further, bonus issue should be made only in dematerialised form.
• Other amendments:
  1. Compliance of corporate governance norms by High Value Debt Listed Entities (HVDLEs⁵ A listed entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of INR500 crore and above ): Currently, the corporate governance norms (i.e., Regulations 16 to 27 of the LODR Regulations) are applicable to HVDLEs up to 31 March 2023 on a comply or explain basis, and mandatory thereafter. However, SEBI has now extended the period for which the corporate governance norms would be applicable to HVDLEs on a comply or explain basis up to 31 March 2024. Additionally, SEBI has proposed the approval for consolidation of disclosure requirements under Regulation 57⁶ Regulation 57 of the LODR Regulations deals with intimations/other submissions to stock exchanges of the LODR Regulations. Accordingly, the disclosure requirements pertaining to payment of interest/coupon and redemption amount would be streamlined and multiple filings would be eliminated.
  1. Introduction of the concept of General Information Document (GID) and Key Information Document (KID) for issuance of bonds/commercial paper and streamlining of disclosures: In February 2023, SEBI had issued a consultation paper for the introduction of GID/KID⁷ Consultation paper on proposal for introduction of the concept of General Information Document(GID) and Key Information Document(KID),mandatory listing of debt securities of listed issuers and other reforms under the NCS Regulations.. The following proposals have been approved:

• A GID would contain the specified information and disclosures in common schedule and should be filed with the stock exchange(s) at the time of the first issuance. It would have a validity period of one year.
• Thereafter, for subsequent private placements of non-convertible securities and/or commercial paper within the validity period, only a KID would be required to be filed with the stock exchange(s) containing material changes. This has been proposed to be made applicable on a ‘comply or explain’ basis till 31 March 2024 and mandatory thereafter.
• Introduction of a common schedule for disclosures that are required to be made in a prospectus for public issuance of debt securities/nonconvertible redeemable preference shares and in a placement memorandum for private placement of non-convertible securities which are proposed to be listed.

1. Extension of “comply or explain” period for Large Corporates (LCs) to meet their financing needs from debt market through issuance of debt securities: Currently, large corporates are required to mobilise a minimum of 25 per cent of their incremental borrowings in a financial year through the issuance of debt securities which has to be met over a contiguous block of two years. SEBI has extended the period of compliance to a contiguous block of three years.

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To access the text of the SEBI board meeting, please click here