CS PROFESSIONAL

ESG
Lessons To Be
Rounded Of
From Module
Under One Roof

CA Mayur Agarwal
8888881719 | 7447447338
www.inspireacademy.info
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CS PROFESSIONAL
Environmental, Social and Governance (ESG) – Principles
& Practice

Sr. No. Topic Page No.

1 Conceptual Framework of Corporate Governance 2–3
2 Legislative Framework of Corporate Governance in India 4–5
3 Board Effectiveness/Building Better Boards 6–7
4 Board Processes Through Secretarial Standards 8–9
5 Board Committees 10 – 11
6 Concept of Governance in Professional Managed Company & 12 – 13
Promoters Driven Company
7 Board Disclosures and Website Disclosures 14 – 16
8 Data Governance 17 – 19
9 Stakeholders Right 20 – 21
10 Business Ethics, Code of Conduct and Anti-Bribery 22 – 23
11 Board’s Accountability on ESG 24
12 Environment 25 – 26
13 Corporate Social Responsibility (CSR) 27 – 28
14 Green Initiatives 29 – 30
15 Governance Influencers 31 – 32
16 Empowerment of the Company Secretary Profession 33
17 Risk Management 34 – 35
18 Sustainability Audit; ESG Rating; Emerging Mandates from 36 – 37
Government and Regulators
19 Integrated Reporting Framework; Global Reporting Initiative 38 – 40
Framework; Business Responsibility & Sustainability
Reporting

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Chapter 1 - Conceptual Framework of Corporate Governance

 The root of the word Governance is from ‘gubernate’, which means to steer. Corporate
governance would mean to steer an organization in the desired direction. The responsibility to
steer lies with the board of directors/governing board. Governance is concerned with the
intrinsic nature, purpose, integrity and identity of an organization with primary focus on the
entity’s relevance, continuity and fiduciary aspects.

 Corporate Governance Basic theories: Agency Theory; Stock Holder Theory; Stake Holder
Theory; Stewardship Theory.

 OECD has defined corporate governance to mean “A system by which business corporations are
directed and controlled”.

 As per CII “Corporate governance deals with laws, procedures, practices and implicit rules that
determine a company’s ability to take informed managerial decisions vis-à-vis its claimants - in
particular, its shareholders, creditors, customers, the State and employees. There is a global
consensus about the objective of ‘good’ corporate governance: maximising long-term
shareholder value.”

 The Kumar Mangalam Birla Committee constituted by SEBI has observed that: “Strong corporate
governance is indispensable to resilient and vibrant capital markets and is an important
instrument of investor protection. It is the blood that fills the veins of transparent corporate
disclosure and high quality accounting practices. It is the muscle that moves a viable and
accessible financial reporting structure.”

 N.R. Narayana Murthy Committee on Corporate Governance constituted by SEBI has observed
that: “Corporate Governance is the acceptance by management of the inalienable rights of
shareholders as the true owners of the corporation and of their own role as trustees on behalf of
the shareholders. It is about commitment to values, about ethical business conduct and about
making a distinction between personal and corporate funds in the management of a company.”

 The Institute of Company Secretaries of India has also defined the term Corporate Governance
to mean “Corporate Governance is the application of best management practices, compliance of
law in true letter and spirit and adherence to ethical standards for effective management and
distribution of wealth and discharge of social responsibility for sustainable development of all
stakeholders.”

 Initiated by Cadbury Committee, corporate governance has grown multifold in UK. UK Corporate
Governance Code, 2016 is a revised version of earlier code with few new recommendations.

 With the introduction of Sarbanes–Oxley Act, 2002 Corporate Governance practices have been
fundamentally altered – auditor independence, conflict of interests, financial disclosures, severe
penalties for willful default by managers and auditors in particular.

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 Good governance is integral to the very existence of a company. It inspires and strengthens
investor’s confidence by ensuring company’s commitment to higher growth and profits.

 Ancient Indian scriptures contain learning on governance. Kautilya’s Arthashastra maintains that
for good governance, all administrators, including the king were considered servants of the
people.

 Governance: Relates to “the processes of interaction and decision-making among the actors
involved in a collective problem that lead to the creation, reinforcement, or reproduction of
social norms and institutions.” Corporate Performance: It is a composite assessment of how well
an organization executes on its most important parameters, typically financial, market and
shareholder performance.

 Triple Bottom Line: It is an accounting framework with three parts: social, environmental and
financial. Organizations have adopted the TBL framework to evaluate their performance in a
broader perspective to create greater business value.

 Sarbanes Oxley Act: An American federal law, 2002, which substantially revised and
strengthened securities laws and their administration in the aftermath of high profile corporate
accounting scandals such as that involving Enron.

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Chapter 2 - Legislative Framework of Corporate Governance in India

 Legal and regulatory framework of corporate governance in India is mainly covered under the
Companies Act, 2013, Listing Regulations, 2015 and SEBI guidelines.

 The Securities and Exchange Board of India (SEBI) is the prime regulatory authority which
regulates all aspects of securities market enforces the Securities Contracts (Regulation) Act
including the stock exchanges. Companies that are listed on the stock exchanges are required to
comply with the Listing Regulations, 2015.

 Corporate Governance’ as the application of best management practices compliance of law in

true Letter and spirit and adherence to ethical standards for effective management and
distribution of wealth and discharge of social responsibility for sustainable development of all
stakeholders.

 The companies listed with Stock Exchanges have to adhere to the SEBI (LODR) Regulations,2015
in addition to the provisions of the Companies Act or the Act under which they been formed.
The banks under governed by the different statutes hence the respective Acts under which they
have been incorporated have to comply with that requirement along with the directives of the
Regulatory Authorities (like RBI for Banks and IRDA for Insurance).

 The inception of the Corporate Governance norms may for banks may firstly be treated when
the RBI accepted and published the Ganguly Committee Recommendations. Since India is also
following the best practices as enunciated by the Basel Committee and adopted by the banks in
India as per the directions of the RBI, the Corporate Governance Norms as suggested in Basel I, II
and III has also been elaborated in the chapter.

 The Corporate Governance norms for insurance companies are governed by the IRDA guidelines.

 Insurance: A company that calculates the risk of occurrence then determines the cost to replace
(pay for) the loss Company: to determine the premium amount. A business that provides
coverage, in the form of compensation resulting from loss, damages, injury, treatment or
hardship in exchange for premium payments.

 Banking: “banking company” means a banking company as defined in clause (c) of section 5 of
the Banking Company: Regulation Act, 1949. NBFC’s: A Non-Banking Financial Company (NBFC) is
a company registered under the Companies Act, 1956 engaged in the business of loans and
advances, acquisition of shares/stocks/bonds/ debentures/ securities issued by Government or
local authority or the marketable securities of a like nature, leasing, hire-purchase, insurance
business, chit business but does not include any institution whose principal business is that of
agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or
providing any services and sale/purchase/construction of immovable property. A non-banking
institution which is a company and has principal business of receiving deposits under any
scheme or arrangement in one lumpsum or in installments by way of contributions or in any
other manner, is also a non-banking financial company and is known as Residuary non-banking
company.

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 CPSEs: Central Public Sector Enterprises (CPSEs) are those companies in which the direct holding
of the Central Government or other CPSEs is 51% or more.

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Chapter 3 - Board Effectiveness/Building Better Boards

 The Board of Directors plays a pivotal role in ensuring good governance. The contribution of
directors on the Board is critical to the way a corporate conducts itself.

 Responsibilities of Board - to establish an organizational vision and mission, giving strategic

direction and advice, overseeing strategy implementation and performance, developing and
evaluating the CEO, to ensure the organization has sufficient and appropriate human resources,
ensuring effective stakeholder relations, risk mitigation, procuring resources.

 The board functions on the principle of majority or unanimity. A decision is taken on record if it
is accepted by the majority or all of the directors. A single director cannot take a decision.

 Executive director or ED is a common post in many organisations, but the Companies Act, 2013
does not define the phrase.

 Non-executive directors do not get involved in the day-to-day running of the business.

 Independent directors are known to bring an objective view in board deliberations. They also
ensure that there is no dominance of one individual or special interest group or the stifling of
healthy debate. They act as the guardians of the interest of all shareholders and stakeholders,
especially in the areas of potential conflict Board composition is one of the most important
determinants of board effectiveness.

 A board should have a mix of inside/Independent Directors with a variety of experience and core
competence if it is to be effective in setting policies and strategies and for judging the
management’s performance objectively.

 The effectiveness of the board depends largely on the leadership skills, capabilities and
commitment to corporate governance practices of each individual director.

 The Chairman’s primary responsibility is for leading the Board and ensuring its effectiveness.

 Induction and continuous training of Directors is of utmost importance to keep them updated
with latest happenings in the company and major developments that impact the company.

 A formal evaluation of the board and of the individual directors is one potentially effective way
to respond to the demand for greater board accountability and effectiveness.

 An effective board evaluation requires the right combination of timing, content, process, and
individuals.

 Globalization: Globalization implies the opening of local and nationalistic perspectives to a

broader outlook of an interconnected and interdependent world with free transfer of capital,
goods, and services across national frontiers. However, it does not include unhindered

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movement of labour and, as suggested by some economists, may hurt smaller or fragile
economies if applied indiscriminately.

 Accountability: The obligation of an individual or organization to account for its activities, accept
responsibility for them, and to disclose the results in a transparent manner. It also includes the
responsibility for money or other entrusted property.

 Corporate Citizen: The legal status of a corporation in the jurisdiction in which it was
incorporated.

 Familiarization Programmes: The Familiarization Programmes are aimed to familiarize the

independent directors with the company, their roles responsibilities in the company, nature of
industry in which the company operates and business model of the company by imparting
suitable training sessions.

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Chapter 4 - Board Processes through Secretarial Standards

 According to Section 118 (10) of the Companies Act 2013, every company shall observe
secretarial standards with respect to General and Board meetings specified by the Institute of
Company Secretaries of India and approved as such by the Central Government.

 The Ministry of Corporate Affairs (MCA) has accorded its approval to the Secretarial Standards
(“SS”) specified by the Institute of Company Secretaries of India.

 The Secretarial Standards were notified by the Institute of Company Secretaries of India in the
Official Gazette and were effective from July 1, 2015. The SS-1 was revised and the revised SS-1
came into effect from 1st October, 2017.

 SS-1 facilitates compliance with these principles by endeavouring to provide further clarity
where there is ambiguity and establishing benchmark standards to harmonise prevalent diverse
practices.

 SS-1 requires Company Secretary to oversee the vital process of recording and facilitating
implementation of the decisions of the Board.

 SS-1 is applicable to the Meetings of Board of Directors of all companies incorporated under the
Act.

 SS-1 provides for some of the best standard practices to be followed for conduct of meetings by
the companies.

 Electronic Mode: In relation to Meetings means Meetings through video conferencing or other
audio-visual means. “Video conferencing or other audiovisual means” means audio-visual
electronic communication facility employed which enables all the persons participating in a
Meeting to communicate concurrently with each other without an intermediary and to
participate effectively in the Meeting.

 Secretarial Auditor: Means a Company Secretary in Practice or a firm of Company Secretary(ies)

in Practice appointed in pursuance of the Act to conduct the secretarial audit of the company.

 Maintenance: Means keeping of registers and records either in physical or electronic form, as
may be permitted under any law for the time being in force, and includes the making of
appropriate entries therein, the authentication of such entries and the preservation of such
physical or electronic records.

 Minutes Book: Means a Book maintained in physical or in electronic form for the purpose of
recording of Minutes.

 Secured Computer System: Means computer hardware, software, and procedure that –

(a) are reasonably secure from unauthorized access and misuse;

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(b) provide a reasonable level of reliability and correct operation;

(c) are reasonably suited to performing the intended functions; and

(d) adhere to generally accepted security procedures.

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Chapter 5 - Board Committees

 A Board Committee is a small working group identified by the Board, consisting of Board
members for the purpose of supporting the Board’s work.

 To enable better and more focused attention on the affairs of the Corporation, the board
delegates particular matters to committees of the board set up for the purpose.

 Committees are usually formed as a means of improving board effectiveness and efficiency, in
areas where more focused, specialized and technical discussions are required.

 Committees prepare the ground work for decision-making and report at the subsequent Board
meeting.

 Audit committee is one of the main pillars of the corporate governance mechanism in any
company. The committee is charged with the principal oversight of financial reporting and
disclosures and enhance the confidence in the integrity of the company’s financial reporting and
disclosure and aims to the internal control processes and procedures and the risk management
systems.

 Greater specialization and intricacies of modern board work is one of the reasons for increased
use of board committees.

 Mandatory committees under Companies Act 2013 are Audit Committee, Nomination and
Remuneration Committee, stakeholders Relationship committee, CSR Committee.

 Nomination and Remuneration Committee: Nomination and Remuneration Committee as the

name suggests is constituted by a company is to determine the qualification and remuneration
packages of executive directors/ chief executive officers.

 Risk Management Committee: A business is exposed to various kind of risk such as strategic risk,
data security risk, fiduciary risk, credit risk, liquidity risk, reputational risk, environmental risk,
competition risk, fraud risk, technological risk etc. A risk management Committee’s role is to
assist the Board in establishing risk management policy, overseeing and monitoring its
implementation.

 Other committees: Corporate Governance Committee, Compliance Committee, Risk

Management Committee, Ethics Committee, Strategies Committee, Capital Expenditure (Capex)
Committee, etc.

 Corporate Governance Committee: A company may constitute this committee to develop and
recommend the board a set of corporate governance guidelines applicable to the company,
implement policies and processes relating to corporate governance principles, to review,
periodically, the corporate governance guidelines of the company.

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 Corporate Compliance Committee: The primary objective of the Compliance Committee is to

review, oversee, and monitor the Company’s compliance with applicable legal and regulatory
requirements, its policies, programs, and procedures to ensure compliance with relevant laws,
its Code of Conduct, and other relevant standards.

 Audit Committee: An audit committee is a group of selected members of a company’s board of

directors whose responsibilities include helping auditors remain independent of management.
Most audit committees are made up of three to five or sometimes as many as seven directors
who are not a part of company management.

 Corporate Social Responsibility Committee: The Corporate Social Responsibility Committee is

appointed by the Board of Directors to promote a culture that emphasizes and sets high
standards for corporate social responsibility and reviews corporate performance against those
standards.

 Independent Director: An independent director (also sometimes known as an outside director)

is a director (member) of a board of directors who does not have a material or pecuniary
relationship with company or related persons, except sitting fees.

 Asset-Liability Committee (ALCO): An asset-liability committee (ALCO), also known as surplus

management, is a supervisory group that coordinates the management of assets and liabilities
with a goal of earning adequate returns. By managing a company’s assets and liabilities,
executives are able to influence net earnings, which may translate into increased stock prices.

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Chapter 7 - Concept of Governance in Professional Managed Company & Promoters Driven

Company

 India enjoys a rich and glorious history of family-owned business. A family business may be
company, partnership firm, HUF or any other form of business owned, controlled and operated
by members of a family. In India the majority of businesses are controlled by families.

 Most family businesses do not survive beyond two or three generations. One of the main
reasons for the short life span of family businesses is due to the lack of governance mechanisms
in the family. With better family governance, business development reaches next level and
ensures continuity of the business across generations.

 To build up the transparency and accountability of the Board of Directors, the Act now requires
at least 1/3rd of the total directors of a listed company to be Independent Directors and have no
material or pecuniary relationship with the company or related persons.

 Family assembly: A formal gathering of family members to discuss business and family issues.
This meeting, usually held once or twice a year, is generally open to all members of the extended
family.

 Family constitution: A set of documents that record the family’s values, hopes and goals as well
as a framework for how to achieve them. The constitution provides guidance on the activities of
the family, the business, the enterprise, the family office and more.

 Family council: A formal governing body that represents the family. It makes decisions on issues
that overlap the family and the business and makes recommendations on behalf of the family to
the board.

 Family enterprise: The various businesses and shared investments, including real estate, owned
jointly by family members. A family usually begins with a single legacy business and then, over
generations, diversifies into other investments, often selling their family business.

 Family governance: Agreements and shared activities that organize the family to remain aligned
in support of their ventures and investments through multiple generations.

 Family office: A private wealth management advisory firm that serves ultra-high-net-worth
families. A single family office serves one family. Multifamily offices serve multiple families.
Family offices can also manage non-financial issues, such as travel and household arrangements.

 Family values: In a family business context, these are statements of what the family and their
company stand for and believe. Families typically uncover and enshrine family values over time.
Documenting and distributing the values to all stakeholders creates behavioral guides for
decisions, brand development and family development. Some families create separate
statements of family values and business values.

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 Independent directors/board members: Members of the board of directors or board of advisers

who are not family members, company employees, advisers or consultants paid by the company,
or close associates of the CEO or other key stakeholders.

 Stewardship: The careful and responsible management of something entrusted to one’s care; an
attitude that one’s inheritance should be preserved and passed on to others, rather than used
up.

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Chapter 8 - Board Disclosures and Website Disclosures

Website Disclosures for Companies that Conduct Online Business

For companies that conduct online business, the following must be disclosed on the website: –
Name of the Company

 Registered Office Address

 Company Identification Number (CIN)

 Telephone Number – Fax Number, if any

 Email address

 Contact person in case of any grievances or queries on the landing page of the website.

Website Disclosures for Private Companies –

 The Notice of the General Meeting must be placed on the website.

 Details of unpaid dividends, including names and last known addresses of the shareholders,
must be disclosed. pecuniary relationship with the company or related persons.

 Details of the Corporate Social Responsibility (CSR) must be published on the website.

 Separated Audited accounts with respect to each subsidiary must be published on the website.

 If a director resigns, the same information must be published within 30 days of the director’s
resignation.

Website Disclosures for Public Companies

In addition to the mandatory disclosures for the private company, a public company must also
publish the following:

 The notice of “Change of objects for which money is raised through prospectus” under Rule 32
of Chapter II – Companies (Incorporation) Rules 2014 must be published on the website.

 A copy of the circular inviting deposits from the public must be on the website of the company.

 Information about the closure of the register of members or debenture holders or other security
holders.

 Notice of the postal ballot.

 Results of the postal ballot along with the scrutiniser’s report must be published.

 Details of the establishment of the Vigil Mechanism must also be disclosed on the website.

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 Terms of Appointment of Independent Directors must also be published on the website.

Website Disclosures for Listed Companies

A listed company is compulsorily required to have a functional website. The following details must
also be mentioned on the website:

 Particulars of the business activities.

 Terms of Appointment of Independent Directors must also be published on the website.

 Particulars of the structure of the various committees of the Board of Directors.

 Code of Conduct of Senior Management and Board of Directors.

 A policy with regards to related party transactions.

 Details of the establishment of the Vigil Mechanism and Whistle Blower Policy.

 Email of Grievance Redressal Mechanism and other relevant information.

 Shareholding Pattern.

 Designated Officials who can handle investor grievances.

 All other information about notices, taxes, agreements, and financial information.

 Related-Party Transaction: The term related-party transaction refers to a deal or arrangement

made between two parties who are joined by a pre-existing business relationship or common
interest. Companies often seek business deals with parties with whom they are familiar or have
a common interest.

 Clause 54: The issuer Company agrees to maintain a functional website containing basic
information about the Company e.g. details of its business, financial information, shareholding
pattern, compliance with corporate governance, contact information of the designated officials
of the Company who are responsible for assisting and handling investor grievances, details of
agreements entered into with the media Companies and/or their associates, etc.

 Code of Conduct - Clause 49(II)(E)/ Code of Fair Disclosure: The Board shall lay down a code of
conduct for all Board members and Senior Management of the Company. The code of conduct
shall be posted on the website of the Company.

 Whistle Blower Policy - Clause 49(II)(F): The Company shall establish a vigil mechanism for
directors and employees to report concerns about unethical behaviour, actual or suspected
fraud or violation of the Company’s code of conduct or ethics policy. The details of
establishment of such mechanism shall be disclosed by the Company on its website and in the
Board’s report.

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 Material Subsidiaries - Clause 49(V)(D): The Company shall formulate a policy for determining
‘material’ subsidiaries and such policy shall be disclosed on the Company’s website and a web
link thereto shall be provided in the Annual Report.

 Related Party Transactions - Clause 49(VIII)(A)(2) The Company shall disclose the policy on
dealing with Related Party Transactions on its website and a web link thereto shall be provided
in the Annual Report.

 Remuneration of Directors – Clause 49(VIII)(C)(3): The Company shall publish its criteria of
making payments to Non-Executive Directors in its annual report. Alternatively, this may be put
up on the Company’s website and reference drawn thereto in the annual report.

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Chapter 9 - Data Governance

 Data governance is everything one do to ensure data is secure, private, accurate, available, and
usable. It includes the actions people must take, the processes they must follow, and the
technology that supports them throughout the data life cycle.

 Data governance is the process of ensuring that the business rules for data are established and
followed.

 Data management is the process of making sure that all data is captured, managed, used, and
disposed of properly.

 The most common objective of data governance is the standardization of data definitions across
an enterprise or organization. Other goals and objectives depend on the focus of a particular
data governance program. Within the commonly accepted data governance framework, one
should determine principles that make sense for the environment.

 Top-down method is the centralized approach to data governance. It relies on a small team of
data professionals who employ well-defined methodologies and well-known best practices. This
means data modelling and governance are prioritized. Only later is the data made more broadly
available to the rest of the organization for analytics.

 The bottom-up method allows for much more agility when managing data. While the top-down
method starts with data modelling and governance, the bottom-up approach starts with raw
data. After the raw data is ingested, structures on top of the data can be created (referred to as
“schema on read”), and data quality controls, security rules, and policies can be implemented.

 Data Governance: Data governance means setting internal standards—data policies—that apply
to how data is gathered, stored, processed, and disposed of. It governs who can access what
kinds of data and what kinds of data are under governance.

 Master Data Management: Commonly referred to as MDM, Master Data Management is a

technology enabled discipline that comprises specific tools, processes, policies, and rules to
ensure one point of reference for the entire organization. MDM ensures timely, consistent, and
accurate data management and distribution across your business departments, entities, and
applications.

 Data warehousing: It involves the storage of the organization’s various data sources in internal
or external databases.

 BI management: or Business Intelligence management ensures that the tools, processes, and
units involved are following the guidelines outlined in the data governance strategy. While BI is
the process of analysing data that has been checked for accuracy and validity and delivering
actionable business insights that help organizations make better decisions.

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 Document and content management: They are both different processes that intersect. A DMS
or a document management system is used to store and retain different document formats
while a content management system can handle unstructured and structured data such as web
content.

 Data security management (DSM): It ensures that there are measures to protect data from
theft, breaches, and corruption. There are also laws in place that vary from region to region that
organizations have to keep in mind while ensuring DSM.

 Data operations management: It is the management of DataOps or data operations and focuses
on data delivery to the organization. DataOps deals with implementing, planning, and managing
a distributed data architecture that will support a wide range of tools and guidelines that have
been outlined.

 Data development: Itis the collation of data sets with a common objective. This means the way
the data is collected has no consequence on this process. An ideal data developmental process
would help the organization chart out data standards that are aligned with consistent data
collection.

 Data architecture management (DAM): It keeps a track of the organization’s data assets and
charts out the data flow. On the basis of the data flowing through several systems, DAM aims to
provide a strategy for managing this data flow.

 Data integration and distribution: It ensures that data is synching and integrated across all
business systems, applications, and the ERP. A data integration tool can be used to integrate all
data so that there are no data silos that could slow down operations or result in issues. This is
also a means to distribute data within the ERP and to other legal entities.

 Data quality management: It is the process of adding rules and validations to ensure that data is
meeting the set criteria for accuracy, consistency, timeliness, integrity, validity, and
completeness. Consistent data quality is required to ensure that any analytics performed on the
data is accurate and meaningful. It would be advisable to have periodic assessments to your
data to ensure data quality even with changes in validation rules.

 Data stewardship: It is responsible for the accessibility, usability, and security of the
organization’s data. A data steward oversees all functions that come under the data lifecycle
from creation to storage to deletion.

 Reference data management: It is the management of classifications that distinguish data

across business systems. This include tracking any changes, the creation and distribution of
reference data.

 Product information management: It is the management of all product-related information that

is used to market and sell products through existing channels.

 Workflow automation: is the process of automating task flows for documents and data across
business functions adhering to the set business rules. You can use a data entry workflow tool to
quicken this process.

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 Data management: Data governance is a subset of data management but all the areas that data
governance sets out a strategy for, come under data management as well. Therefore, data
management involves the collection, storage, protection, organization, correction, management,
and distribution of the enterprise’s data. Data management processes ensure that the data is
ready to be analysed for extracting business insights that impacts the growth of the
organization.

 Master data: It is what we like to call the single source of truth. While master data is the
content, MDM is the practice area. It is the data that is absolutely critical for day-to-day
operations within a business unit or organization.

 Metadata: shares distinct attributes that help describe and categorize other data within a
database. There are various types of metadata such as descriptive, structural, administrative,
reference, statistical and legal.

 Reference data: It is a subset of master data that is used to classify other data throughout the
organization.

 Data migration: It is the process of moving or migrating data between systems, formats, or
servers.

 Data protection and compliance: It is an important process to safeguard and protect important
business information from corruption or loss. Compliance ensures that there are strict guidelines
that are followed to protect data and in keeping with international and local data privacy laws.

 Bulk data transfer: A mechanism, usually software-based, which is designed to move large data
files, supporting compression, blocking, and buffering in order to cut down on wait times.

 Data staging: It ensures a place for data to be stored where it can be validated or corrected.

 Database: It is the collection of the organization’s data listed out that can easily be retrieved or
searched via data catalogues or other means to categorize data.

 Data Lake: It is a storage repository for all categories of data regardless of its size. A data lake
acts as a large container for data coming from various sources into an organization, internal or
external.

 Data Warehouse: It is the central location of data that is integrated across systems and
applications. A data warehouse stores real-time and older data and can be used to create
reports and for analysis.

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Chapter 10 - Stakeholders Rights

 Human rights are basic rights and freedoms that protect us all. Businesses have minimum
responsibilities to meet to respect human rights. Companies that focus on respecting human
rights - and cultivate positive relationships with their stakeholders - can help ensure their
business’ continued growth and social license to operate.

 A stakeholder is a party that has an interest in a company and can either affect or be affected by
the business. The primary stakeholders in a typical corporation are its investors, employees,
customers, and suppliers. However, with the increasing attention on corporate social
responsibility, the concept has been extended to include communities, governments, and trade
associations.

 Employees are an integral part of an organization’s stakeholder list and protecting their rights is
an essential element of corporate governance. Health and Safety, prevention of sexual
harassment at workplace, employee attrition, gender parity, monetary and non-monetary
benefits are some of the areas which impact employees as stakeholders in the corporate
governance regime and hence needs to be addressed by all organisations.

 Whistleblowing could be understood as the process that reveals any kind of unethical activity
happening within an organization, company by an employee, or any person privy to such
activities. Corporate whistleblowing plays a pivotal role in corporate governance that is adopted
by an organization or a company.

 Suppliers are another important spoke in the wheel of corporate governance as they provide
materials, services, or equipment required by the project and have a bearing on the policies and
functioning of an organization.

 Human Rights: Human rights are rights inherent to all human beings, regardless of race, sex,
nationality, ethnicity, language, religion, or any other status. Human rights include the right to
life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right
to work and education, and many more. Everyone is entitled to these rights, without
discrimination.

 Whistle blowing means calling attention to wrongdoing that is occurring within an organization.

 Whistle Blower: is an employee or group of employees who make a Protected Disclosure under
a Whistle Blower Policy and may also be referred to as complainant in a case of whistle blowing.

 Gender Equality: Gender equality in the workplace refers to equal opportunities and rights for
working women, transwomen, men, and other people belonging to different gender identities.

 Gender Parity: Gender parity is a statistical measure used to describe ratios between men and
women, or boys and girls, in a given population. Gender parity may refer to the proportionate
representation of men and women in a given group, also referred to as sex ratio, or it may mean

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the ratio between any quantifiable indicator among men against the same indicator among
women.

 Employee Turnout: Employee turnover, or employee turnover rate, is the measurement of the
number of employees who leave an organization during a specified time period, typically one
year.

 Monetary Benefits: Monetary Benefits are financial incentives often used by employers to
encourage workers to meet their goals.

 Non-Monetary Incentives are any items or experiential rewards given in an incentive program as
a result of an employee’s performance, which can easily be assigned a monetary value.

 Local procurement: Local procurement refers to the purchase of goods and services from
domestic suppliers.

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Chapter 11 - Business Ethics, Code of Conduct and Anti-Bribery

 Business ethics is a form of applied ethics. In broad sense ethics in business is simply the
application of moral or ethical norms to business.

 The Board shall lay down a code of conduct for all Board members and senior management of
the company. The code of conduct shall be posted on the website of the company.

 To create a code of ethics, an organization must define its most important guiding values,
formulate behavioral standards to illustrate the application of those values to the roles and
responsibilities of the persons affected, review the existing procedures for guidance and
direction as to how those values and standards are typically applied, and establish the systems
and processes to ensure that the code is implemented and is effective.

 An ethical dilemma involves a situation that makes a person question what is the ‘right’ or
‘wrong’ thing to do. Ethical dilemmas make individuals think about their obligations, duties and
responsibilities. These dilemmas can be highly complex and difficult to resolve. Easier dilemmas
involve a ‘right’ versus ‘wrong’ choice; whereas, complex ethical dilemmas involve a decision
between a right and a right choice.

 Advantages of business ethics - attracting and retaining talent, investor loyalty, customer
satisfaction and regulators.

 In making ethics work in an organization it is important that there is synergy between vision
statement, mission statement, core values, general business principles and code of ethics.

 The PCA criminalizes the acceptance of gratification (pecuniary or otherwise) other than the
acceptance of legal remuneration by public servants which is paid by their employers in
connection with the performance of their duties.

 The LLA requires each State to establish a Lokayukta by law under the state legislature.

 Business Ethics: Business ethics (also known as corporate ethics) is a form of applied ethics or
professional ethics, that examines ethical principles and moral or ethical problems that can arise
in a business environment.

 Indian Ethos: Indian Ethos in Management refers to the values and practices that can contribute
to service, leadership and management. These values and practices are rooted in Sanathana
Dharma (the eternal essence), and have been influenced by various strands of Indian philosophy.

 Ethical Dilemma: An ethical dilemma or ethical paradox is a decision-making problem between

two possible moral imperatives, neither of which is unambiguously acceptable or preferable. The
complexity arises out of the situational conflict in which obeying one would result in
transgressing another.

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 Bribery: ‘Bribery’ includes giving or receiving bribe and third party gratification. The act of giving
bribe is when committed intentionally in the course of economic, financial or commercial
activities and when it is established that there is a promise, offering or giving, directly or
indirectly, of an undue advantage to any person who directs or works, in any capacity, for a
commercial entity, for the person himself or for another person, in order that he in breach of his
duties, act or refrain from acting.

 Facilitaion payment: Facilitation payment’ means a payments made to government or private

official that acts as an incentive for the official to complete some action or process expeditiously
to the benefit of the party making the payment.

 PCA: The Prevention of Corruption Act, 1988 is an Act of the Parliament of India enacted to
combat corruption in government agencies and public sector businesses in India.

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Chapter 12 - Board’s Accountability on ESG

 There is substantial shift in the focus of companies from shareholder value maximisation to
enterprise value creation for stakeholders including employees, customers, communities,
government and supply chain as well.

 The Board of Directors are accountable for most of the items stated in the elements of effective
ESMS whether policy, identification of risks, stakeholders engagement, reporting obligations,
monitoring/overseeing ESG targets.

 Climate Action failure is considered to be most critical risk globally in both short term and long
term. As per the Global Risks Report 2022 of the world Economic Forum, most severe risks on a
global scale over the next 10 years include, climate action failure, extreme weather, bio-diversity
loss , social cohesion erosion, livelihood crises, infectious diseases etc.

 Many companies already use management systems for quality control. An environmental and
social management system (ESMS) simply extends that approach to the management of your
business’s impact on the environment, your workers, and other external stakeholders.

 The accountability of the Board on ESG may be discussed under the following heads:

1. Strategy, policy, oversight and Value creation.

2. Identification of ESG risks and opportunities.

3. ESG Reporting.

 ESG Performance: An organization’s performance in fulfilling its responsibilities regarding

environmental, social, and governance issues.

 Integrated Reporting: Integrated reporting is a process founded on integrated thinking for

communicating how an organisation’s strategy, governance, performance and prospects lead to
the creation of value in the short, medium and long term.

 BRSR Framework: The BRSR Framework is based on 9 Principles, which include conducting
business with integrity, providing sustainable and safe goods and services, respecting and
promoting human rights, and promoting inclusive growth and equitable development, among
others.

 4 Ps of Board’s Accountability: The four Ps of Board’s Accountability are- people, purpose,

performance and progression.

 3 ESG Pillars: The three pillars of ESG are- people, process and product.

 Board Accountability: Board accountability means that the board takes responsibility for the
company’s actions and presents them transparently to stakeholders.

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Chapter 13 – Environment

 The environment consists of all things-living or non-living that influence human life. It plays a
vital role in the functioning of our daily lives.

 Environmental law is an integral part of any government agency. It includes a series of laws and
regulations related to water quality, air quality, and other environmental aspects. The success of
environmental legislation mainly depends on how they are implemented.

 Energy can be classified into several types based on the following criteria- Primary and
Secondary energy, Commercial and Non-commercial energy and Renewable and Non-Renewable
energy

 Commercial energy forms the basis of industrial, agricultural, transport and commercial
development in the modern world.

 The energy sources that are not available in the commercial market for a price are classified as
non-commercial energy.

 The awareness of ESG issues and targeting goals beyond maximising profits and minimising risks
is now a growing trend among corporates around the world.

 India’s Energy mix has been seeing a shift from more conventional resources of energy to
renewable sources.

 The utilisation rate of coal power plants is falling. India’s coal mines use only two-thirds of the
capacity with some large ones using only 1 percent, according to a Global Energy Monitor (GEM)
analysis.

 Environmental impacts are changes in the natural or built environment, resulting directly from
an activity that can have adverse effects on the air, land, water, fish, and wildlife or the
inhabitants of the ecosystem.

 Since 2015, India has been planning on increasing its forest and tree cover and has initiated
several programs like the Green India Mission, green highways policy, financial incentives for
forests, plantations along rivers, and more to achieve the same.

 Renewable energy grows strongly in all scenarios, at an average of 4-6% a year.

 Atmanirbhar Clean Plant Program: INR 22 billion ($267 million) will be allocated to boost the
availability of disease-free, quality planting material for high-value horticultural crops.

 Biodiversity: The variability among living organisms from all sources, including terrestrial,
marine and other aquatic ecosystems and the ecological complexes of which they are part; this
includes diversity within species, between species and of ecosystems. A high level of biodiversity
is usually considered to be desirable and important to all species’ survival.

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 Carbon footprint: The measurement of greenhouse gas emissions attributable to an event or

activity, expressed as tonnes of carbon dioxide equivalent which allows the different greenhouse
gases to be compared on a like-for-like basis relative to one unit of CO2.

 Carbon offsetting: Where individuals and organisations mitigate their emissions by investing in
projects that avoid the production of carbon or remove it from the atmosphere.

 Climate change: The term used to describe the change in global or regional climate patterns, in
particular attributable to the increased levels of atmospheric carbon dioxide produced by the
use of fossil fuels.

 Greenhouse gases: Gases that trap heat in the atmosphere are called greenhouse gases. The
principal greenhouse gases are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and
fluorinated gases, such as hydro fluorocarbons (HFCs).

 Green procurement: The purchasing of environmentally friendly products and services, and the
use of environmental requirements in the selection, and contracting, of suppliers.

 LEED certification: A third-party verification process in order for structures to be considered

“green,” or environmentally friendly. LEED stands for Leadership in Energy and Environmental
Design, is focused primarily on new, commercial-building projects and based upon a points
system,

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Chapter 14 - Corporate Social Responsibility (CSR)

 Corporate Social Responsibility is also called Corporate Citizenship or Corporate Responsibility.

Generally, CSR is understood to be the way firms integrate social, environmental and economic
concerns into their values, culture, decision making, strategy and operations in a transparent
and accountable manner and thereby establish better practices within the firm, create wealth
and improve society.

 Every company having net worth of rupees five hundred crore or more; or turnover of rupees
one thousand crore or more; or a net profit of rupees five crore or more during the immediately
preceding financial year shall constitute a Corporate Social Responsibility Committee of the
Board consisting of three or more Directors, out of which at least one director shall be an
independent director.

 The CSR Committee shall formulate and recommend to the Board, an annual action plan in
pursuance of its CSR Policy.

 The Board of every company after taking into account the recommendations made by the
Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy.

 The Board of every company shall ensure that the company spends, in every financial year, at
least two per cent. of the average net profits of the company made during the three
immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy.

 Annual Action Plan: The CSR Committee shall formulate and recommend to the Board, an
annual action plan in pursuance of its CSR Policy.

 CSR Committee: The Corporate Social Responsibility Committee is appointed by the Board of
Directors to promote a culture that emphasizes and sets high standards for corporate social
responsibility and reviews corporate performance against those standards.

 CSR Policy: The CSR Committee shall formulate and recommend to the Board, a Corporate Social
Responsibility Policy which shall indicate the activities to be undertaken by the company in areas
or subject, specified in Schedule VII; recommend the amount of expenditure to be incurred on
such activities and monitor the Corporate Social Responsibility Policy of the company from time
to time.

 CSR Spending: The Board of every company specified in Section 135 (1), shall ensure that the
company spends, in every financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years.

 Administrative Overheads: The board shall ensure that the administrative overheads shall not
exceed 5% of total CSR expenditure of the company for the financial year.

 Default in compliance – Penalty on the company: If a company is in default in complying with

the provisions of section 135(5) or (6), the company shall be liable to a penalty of

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 twice the amount required to be transferred by the company to the Fund specified in Schedule
VII; or

 the Unspent Corporate Social Responsibility Account; or

 one crore rupees,

whichever is less.

 Default in compliance -Penalty on the officers of the company: Every officer of the company
who is in default shall be liable to a penalty of –
 one-tenth of the amount required to be transferred by the company to such Fund specified in
Schedule VII; or

 the Unspent Corporate Social Responsibility Account; or

 two lakh rupees

whichever is less.

 Need Assessment: Needs assessment is a systematic process for determining and addressing
development needs or gaps between current conditions and desired conditions. The discrepancy
between the current condition and desired condition must be measured to appropriately
identify the development needs of community.

 Impact Assessment: Impact assessment may be defines as a means of measuring the

effectiveness of organisational activities and judging the significance of changes brought about
by those activities.

 Sustainable Development Goals (SDGs): The Sustainable Development Goals (SDGs) were
developed at the United Nations Conference on Sustainable Development, held in Rio de
Janeiro, Brazil, 2012. The purpose was to create a set of global goals, related with the
environmental, political and economic challenges that we face as humanity.

 SDG India IndexNITI Aayog has constructed the SDG India Index spanning across 13 out of 17
SDGs (leaving out Goals 12, 13, 14 and 17).

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Chapter 15 - Green Initiatives

 Pollution abatement refers to technology applied or measure taken to reduce pollution and/or
its impacts on the environment.

 SDGs relating to pollution are- No Poverty, Zero Hunger, Good Health and Well-Being, Quality
Education, Gender Equality, Clean Water and Sanitation, Affordable and Clean Energy, Decent
Work and Economic Growth, Industry, Innovation and Infrastructure, Reduced Inequalities,
Responsible Consumption and Production, Climate Action, Life Below Water, Life on Land,
Peace, Justice and Strong Institutions and Partnerships for the Goals.

 Resource efficiency means using the Earth’s limited resources in a sustainable manner while
minimising impacts on the environment. It allows us to create more with less and to deliver
greater value with less input.

 Energy intensity is the amount of energy required to produce one unit of gross domestic product
(GDP). Going by this definition, it may be opined that the intensity of renewable energy is
increasing both at global and at national levels.

 Water stewardship is a collaborative and multi-stakeholder approach that aims to achieve social,
environmental and economic benefits. By using Water Footprint Assessment, a company can
ensure that all stakeholders are well informed and good river basin governance is developed.

 Water desalination is an industrial process that requires huge amounts of chemicals and energy
to proceed. Therefore, start-ups are focused on developing innovative and eco-friendly solutions
that reduce costs.

 Waste management refers to the various schemes to manage and dispose of wastes. It can be by
discarding, destroying, processing, recycling, reusing, or controlling wastes. The prime objective
of waste management is to reduce the amount of unusable materials and to avert potential
health and environmental hazards.

 Biodegradable: Something capable of decaying into its basic components.

 Carbon emissions: Pollution released into the atmosphere from carbon dioxide and carbon
monoxide; often produced by motor vehicles.

 Climate change: Significant change in climate including temperature, precipitation, or wind that
lasts for an extended period.

 Climate positive: Exceeding achieving carbon neutrality by removing additional carbon dioxide
from the atmosphere; also referred to as carbon negative.

 Eco-conscious: The mentality to focus on reducing harm to the environment wherever possible.

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 Ecological footprint: Measurement based on the amount of nature it takes to support

something.

 Global warming: The average increase of temperature of the troposphere.

 Grey water: Domestic wastewater including wash water from the bathroom, kitchen, and
laundry.

 Greenhouse effect: When excessive heat is trapped and built up in the troposphere by a blanket
of gases.

 Greenwashing: Misrepresenting something as being “green” when it’s not environmentally

sound.

 Reforestation: Planting of forests on lands that were depleted.

 Wish-cycling: An aspirational approach to recycling items without knowing if they’re recyclable

but expecting them to be properly dealt with.

 Sustainability: Environmental practices that protect natural resources needed by future

generations for a positive quality of life.

 Commingle: To blend together similar recyclable materials such as mixed brown, green, and
clear glass – but separate from disposable materials in the waste stream.

 Cradle to Cradle: In cradle to cradle production all material inputs and outputs are seen either as
technical or biological nutrients. Technical nutrients can be recycled or reused with no loss of
quality and biological nutrients composted or consumed.

 Brown Power: Electricity generated from the combustion of fossil fuels, such as coal, oil, and
natural gas, which generates significant amounts of greenhouse gases.

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Chapter 16 - Governance Influencers

 Governance is a system that provides a framework for managing organisations. It identifies who
can make decisions, who has the authority to act on behalf of the organisation and who is
accountable for how an organisation and its people behave and perform.

 An influencer is a person or group that has the ability to influence the behaviour or opinions of
others.

 This chapter highlights the role of some of the major institutions / associations that act as
influencers of governance.

 ICSI has over the year with its tremendous and unyielding efforts has risen as the corporate
leader in corporate governance.

 Investor Associations are group of investors that represent investors before various bodies and
work towards investor rights and awareness.

 Proxy advisory firms grew along with the concept of institutional investing and professional
acumen in corporate decision making. The concept is still evolving, especially in the Indian
context.

 Institutional Investors such as Mutual Funds, Banks, Hedge Funds etc. also act as influencers of
governance due to their size and impact on the financial markets.

 Governance: Governance is the process of making and enforcing decisions within an

organization or society. Corporate Governance: Corporate governance is the system by which
companies are directed and controlled. (Cadburry Report, 1992).

 Influencer: One who exerts influence : a person who inspires or guides the actions of others.

 Association - a group of people or organizations who work together for a particular purpose.

 Investor - a person or organization that puts money into financial schemes, property, etc. with
the expectation of achieving a profit.

 Proxy - A proxy is an individual, legally allowed to act on behalf of another party or a format that
would allow a participant to vote without being physically present at the meeting.

 Proxy Advisory firms - A proxy firm provides services to shareholders to vote their shares at
shareholder meetings of, usually, listed companies.

 Institutional Investors - An institutional investor is an entity that makes investments on behalf

of someone else. Examples include pension funds, mutual funds, insurance companies,
university endowments, and sovereign wealth funds.

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 Foreign Institutional Investor - A foreign institutional investor is an investor in a financial market

outside its official home country.

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Chapter 17 - Empowerment of the Company Secretary Profession

 AI and Machine learning (ML) would change the role of the Company Secretary by making the
role more interesting.

 The company secretaries are identified as conscience of the company .

 While the expanding role of Company Secretaries include functions beyond compliances
including ESG strategies, ESG integration to the business, the functions are closely associated
and linked to Board Governance.

 Environmental sustainability may seem most relevant to the governance of large organizations
with significant carbon footprints or sector specific exposure to the impact of extreme climate
events.

 Sustainability and social responsibility are more embedded terms, encompassing how a
company will be functioning in ten or twenty years’ time and what it is doing to ensure that this
will be the case.

 Governance: The system by which entities are directed and controlled. It is concerned with
structure and processes for decision making, accountability, control and behavior at the top of
an entity.

 Technological changes: The potential for technology to create a more unstable job market could
develop into a prominent governance issue.

 Stakeholder engagement: Stakeholder engagement is the process by which companies

communicate and get to know their stakeholders. By getting to know them, companies are able
to better understand what they want, when they want it, how engaged they are and how the
companies’ plans and actions will affect their goals.

 Algorithm: A procedure or formula used to solve a problem, or a series of instructions which tell
a computer how to transform a data set into useful information. Algorithms are used widely
throughout all areas of information technology.

 Artificial Intelligence (AI): The ability of machines and systems to acquire and apply knowledge,
and to carry out intelligent behavior.

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Chapter 18 - Risk Management

 Risk is inherent in the business. Different types of risk exist in the business according to the
nature of the business and they are to be controlled and managed.

 In traditional concept the natural calamities like fire, earthquake, flood, etc. were only treated
asrisk and keeping the safeguard equipment’s etc. were assumed to have mitigated the risk. But
due to rapid changes, the various types of risks have emerged viz. Compliance risk, legal risk,
country risk, operational risk.

 Risk may be controllable or uncontrollable. In other words, the systematic risk which stands at
macro level is not controllable, but the unsystematic risk which is at micro level is controllable
with the risk mitigation techniques.

 The risk may broadly be segregate as Financial Risk and Non-financial Risk.

 Financial Risk includes market risk, credit risk Liquidity risk, Operational Risk, Legal Risk and
Country Risk. Non-financial risk does not have immediate financial impact on the business, but
its consequence is serious.

 Non-Financial Risk do not have immediate financial impact on the business, but its consequence
are very serious and later may have the financial impact. This type of risk may include, Business/
Industry & Service Risk, Strategic Risk, Compliance Risk, Fraud Risk, Reputation Risk, Transaction
risk, Disaster Risk.

 To mitigate the various types of risks, which a business entity faces, a proper risk management
process should be in force. It is a continuous process and is applied across the organisation. It is
basically the identification of risk areas, assessment thereof, evaluating the impact of such risk,
develop the risk mitigation techniques, establishing the sound internal control process and
continuous monitoring thereof, setting of standards for each process and abnormal variances to
be vetted.

 Risk management plays vital role in strategic planning. It is an integral part of project
management. An effective risk management focuses on identifying and assessing possible risks.

 The process of risk management consists of the following logical and sequential steps,
Identification of risk, Assessment of risk, Analysing and evaluating the risk, Handling of risk (Risk
may be handled through the Risk Avoidance, Risk Retention/ absorption, Risk Reduction, Risk
Transfer) and Implementation of risk management decision.

 ISO 31000 published as a standard on the 13th of November 2009, provides a standard on the
implementation of risk management. ISO 31000 contains 11 key principles that position risk
management as a fundamental process in the success of the organization.

 Fraud has been defined as, ‘A deliberate act of omission or commission by any person, carried
out in the course of a banking transaction or in the books of accounts maintained manually or

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under computer system in banks, resulting into wrongful gain to any person for a temporary
period or otherwise, with or without any monetary loss to the bank”.

 Reputation Risk as the risk arising from negative perception on the part of customers,
counterparties, shareholders, investors, debt-holders, market analysts, other relevant parties or
regulators that can adversely affect a bank’s ability to maintain existing, or establish new,
business relationships and continued access to sources of funding (e.g. through the interbank or
securitisation markets).

 SEBI (LODR) Regulations, 2015 requires that every listed company should have a Risk
Management Committee.

 Secretarial Audit is a process to check compliance with the provisions of all applicable laws and
rules/regulations/procedures; adherence to good governance practices with regard to the
systems and processes of seeking and obtaining approvals of the Board and/or shareholders, as
may be necessary, for the business and activities of the company, carrying out activities in a
lawful manner and the maintenance of minutes and records relating to such approvals or
decisions and implementation.

 Secretarial Audit helps the companies to build their corporate image. Secretarial Audit facilitates
monitoring compliances with the requirements of law through a formal compliance
management programme which can produce positive results to the stakeholders of a company.

 Risk Management: Risk management is the identification, evaluation, and prioritization of risks
followed by coordinated and economical application of resources to minimize, monitor, and
control the probability or impact of unfortunate events or to maximize the realization of
opportunities.

 Fraud Risk: A fraud risk assessment is a tool used by management to identify and understand
risks to its business and weaknesses in controls that present a fraud risk to the organization.

 Secretarial Audit: Secretarial Audit is an audit to check compliance of various legislations

including the Companies Act and other corporate and economic laws applicable to the company.
It provides necessary comfort to the management, regulators and the stakeholders, as to the
statutory compliance, good governance and the existence of proper and adequate systems and
processes.

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Chapter 19 - Sustainability Audit; Esg Rating; Emerging Mandates from Government and
Regulators

 Sustainability in business refers to a company’s strategy to reduce negative environmental

impact resulting from their operations in a particular market.

 The concept of sustainable development fostered reporting on sustainability and reporting on

sustainability paved the way for emergence of sustainability audit. The concept of sustainability
audit has evolved over the years as society’s understanding of sustainability has expanded and
as organizations have become increasingly aware of their impact on the environment and
society besides their bottom-line.

 Sustainability Audit is a comprehensive assessment of an organization’s environmental, social

and economic impacts. It is a targeted evaluation of a company’s current sustainable workplace
practices such that by identifying the current environmental impact, the company can set out
initiatives for executing and promoting improved sustainable measures.

 An organization’s sustainability practices are typically analyzed against environmental, social,

and governance (ESG) metrics.

 An ESG rating measures a company’s exposure to long-term environmental, social, and

governance risks. Along with ESG reporting, ESG ratings help investors understand a company’s
priorities and the long-term risks it could face in the future

 ESG reporting in India commenced in 2009 with the Ministry of Corporate Affairs (MCA) issuing
the Voluntary Guidelines on Corporate Social Responsibility.

 The Companies Act, 2013 introduced one of the first ESG disclosure requirements for
companies.

 The Securities and Exchange Board of India (“SEBI”) introduced the requirement of ESG reporting
back in 2012 and mandated that the top 100 listed companies by market capitalisation file a
BRR. This was later extended to the top 500 listed companies by market capitalisation in 2015. In
2021 SEBI introduced new reporting requirements on ESG parameters called the Business
Responsibility and Sustainability Report (“BRSR”)

 Business resilience: The ability of an organisation to adapt in a changing environment to enable

it to achieve its objectives and prosper.

 Carbon footprint: Total emissions of greenhouse gases (in carbon equivalent) for an activity or
organisation over a given period of time.

 E-waste: Discarded electronic appliances such as mobile phones, computers, and televisions.

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 Integrated reporting: An approach to corporate reporting that integrates financial information

and non-financial (e.g. sustainability) information into a single document to show how a
company is performing.

 Product stewardship: A concept where businesses take responsibility for the environmental
impact of the products they make, sell or buy. This involves all stages of the product’s life cycle,
including end-of-life management.

 Renewable energy: Energy that comes from natural sources that are constantly replenished like
wind, water and sunlight.

 Shared value: A management principle that seeks market opportunities for business to solve
social problems. ‘Creating Shared Value’ was first introduced in the Harvard Business Review in
2011, based on the principle that the competitiveness of a company and the health of the
communities around it are mutually dependent.

 Sustainability: A balance of society, economy and environment for long-term resilience.

 Sustainable Development Goals (SDGs): A collection of 17 interlinked global goals designed to

end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.
They were adopted by the UN in 2015.

 Triple bottom line: A phrase first coined by John Elkington in 1994, describing the separate but
interdependent financial, social and environmental ‘bottom lines’ of companies.

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Chapter 20 - Integrated Reporting Framework; Global Reporting Initiative Framework; Business

Responsibility & Sustainability Reporting

 Sustainability Reporting or Non-Financial Reporting is the process of communicating the social,

environmental and governance effects of a company’s operations to the stakeholders at large.

 ESG reporting in India started in 2009 with the Ministry of Corporate Affairs (MCA) issuing the
Voluntary Guidelines on Corporate Social Responsibility as the first step towards mainstreaming
the concept of business responsibility.

 The Integrated Reporting Framework was developed in 2013. The framework is based on
integrated thinking. Integrated thinking is the process that an organization follows while creating
an Integrated Report.

 The IR Framework is principles-based. The intent of the principles-based approach is to strike an

appropriate balance between flexibility and prescription that recognizes the wide variation in
individual circumstances of different organizations while enabling a sufficient degree of
comparability across organizations to meet relevant information needs.

 The GRI Standards are a modular system of interconnected standards. They allow organizations
to publicly report the impacts of their activities in a structured way that is transparent to
stakeholders and other interested parties.

 The GRI Sector Standards intend to increase the quality, completeness, and consistency of
reporting by organizations.

 SEBI has played a key role in promoting sustainability reporting in India by issuing the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015.

 India is gradually moving towards developing regulations around ESG. With the introduction of
the BRSR framework, SEBI has joined the group of countries and international organization to
have released comprehensive sustainability reporting frameworks.

 Business model: An organization’s system of transforming inputs through its business activities
into outputs and outcomes that aims to fulfill the organization’s strategic purposes and create
value over the short, medium and long term.

 Capitals: Stocks of value on which all organizations depend for their success as inputs to their
business model, and which are increased, decreased or transformed through the organization’s
business activities and outputs. The capitals are categorized in the <IR> Framework as financial,
manufactured, intellectual, human, social and relationship, and natural.

 Content Elements: The categories of information required to be included in an integrated

report; the Content Elements, which are fundamentally linked to each other and are not
mutually exclusive, are stated in the form of questions to be answered in a way that makes the
relationships between them apparent.

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 Guiding Principles: The principles that underpin the preparation and presentation of an
integrated report, informing the content of the report and how information is presented.

 Inputs: The capitals (resources and relationships) that the organization draws upon for its
business activities.

 Integrated report: A concise communication about how an organization’s strategy, governance,

performance and prospects, in the context of its external environment, lead to the creation,
preservation or erosion of value in the short, medium and long term.

 Integrated reporting: A process founded on integrated thinking that results in a periodic

integrated report by an organization about value creation, preservation or erosion over time and
related communications regarding aspects of value creation, preservation or erosion.

 Integrated thinking: The active consideration by an organization of the relationships between its
various operating and functional units and the capitals that the organization uses or affects.
Integrated thinking leads to integrated decision-making and actions that consider the creation,
preservation or erosion of value over the short, medium and long term.

 Material/materiality: A matter is material if it could substantively affect the organization’s

ability to create value in the short, medium or long term.

 Outcomes: The internal and external consequences (positive and negative) for the capitals as a
result of an organization’s business activities and outputs.

 Outputs: An organization’s products and services, and any by-products and waste.

 Performance: An organization’s achievements relative to its strategic objectives, and its

outcomes in terms of its effects on the capitals.

 Providers of financial capital: Equity and debt holders and others who provide financial capital,
both existing and potential, including lenders and other creditors. This includes the ultimate
beneficiaries of investments, collective asset owners, and asset or fund managers.

 Reporting boundary: The boundary within which matters are considered relevant for inclusion
in an organization’s integrated report.

 Stakeholders: Those groups or individuals that can reasonably be expected to be significantly

affected by an organization’s business activities, outputs or outcomes, or whose actions can
reasonably be expected to significantly affect the ability of the organization to create value over
time. Stakeholders may include providers of financial capital, employees, customers, suppliers,
business partners, local communities, NGOs, environmental groups, legislators, regulators and
policy-makers.

 Strategy: Strategic objectives together with the strategies to achieve them.

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 Charged with governance: The person(s) or organization(s) (e.g. the board of directors or a
corporate trustee) with responsibility for overseeing the strategic direction of an organization
and its obligations with respect to accountability and stewardship. For some organizations and
jurisdictions, those charged with governance may include executive management.

 Value creation, preservation or erosion: The process that results in increases, decreases or
transformations of the capitals caused by the organization’s business activities and outputs.

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