ESG Reporting Requirements for Banks - India + Global

For banks, ESG reporting is no longer CSR. It is now risk disclosure + securities law disclosure.

Two regulators govern Indian banks:

SEBI -> For investors - Business Responsibility and Sustainability Report [BRSR]
RBI -> For financial stability - Climate-related Financial Risks Disclosure

I. Indian Framework

A. SEBI BRSR Standards - 2021, Consolidated 2023

Evolution:

• 2021: SEBI replaced Business Responsibility Report [BRR] with Business Responsibility and Sustainability Report [BRSR]
• FY 2022-23: Mandatory for top 1,000 listed companies by market capitalisation - All listed banks - SBI, HDFC, ICICI, Axis, Kotak, PNB fall here.
• 2023: SEBI consolidated and supplemented - Introduced BRSR Core - 9 KPIs that require reasonable assurance.
• FY 2024-25 onwards: BRSR Core mandates third-party assurance for key ESG metrics, while value chain reporting is deferred.

What bank must disclose under BRSR - 9 Principles based on NGRBC 2019:

Principle-wise - Relevant to banks:

• P2: Product sustainability - % of sustainable finance portfolio, green loans, exposure to fossil fuel
• P3: Employee well-being - Diversity, POSH
• P6: Environment - Scope 1 - direct emissions from owned operations, Scope 2 - indirect emissions, Scope 3 - financed emissions - This is critical for bank. SEBI now asks for GHG emissions. Under BRSR, climate reporting requires disclosure of Scope 1 and Scope 2. Scope 3 value chain deferred but banks voluntarily reporting financed emissions.
• P6: Energy, water, waste, air emissions
• P7: Lobbying - Membership in Net-Zero Banking Alliance
• P8: Inclusive growth - Priority sector lending

Format: Quantitative + qualitative. Bank must publish BRSR as part of Annual Report and file on SEBI portal. XBRL filing mandatory.

Liability: As per RMA Legal analysis: Does SEBI PFUTP Regulations 2003 impose liability for greenwashing in BRSR? Yes. Greenwashing is defined as "making false, misleading, unsubstantiated, or otherwise incomplete claims about sustainability". If bank says 30% loan book is green but actually funds coal via refinancing, it can be booked under PFUTP for fraudulent and unfair trade practice. BRSR is legal document now.

B. RBI Disclosure Framework on Climate-related Financial Risks, 2024

Issued Draft on 28 Feb 2024 - Inviting comments.

This is the game changer for banks. As per summary: "In 2024, RBI came out with Draft Disclosure Framework on Climate-Related Financial Risks. Entities like banks and large NBFCs would report on how climate concerns are governed, strategies are formulated, and risks are assessed, as well as on nature of metrics involved. Draft prescribes two-tier disclosure mechanism, baseline and enhanced, designating climate-risk oversight at board level and financed emission targets as mandatory disclosures."

4 Pillars - TCFD aligned:

1. Governance: Board-level climate-risk oversight. Which committee oversees? Frequency? Management's role? Mandatory disclosure.
2. Strategy: How climate risks - physical and transition - impact bank's strategy, business model, credit portfolio. Scenario analysis - 1.5C, 2C, 3C.
3. Risk Management: Process to identify, assess, manage climate risks - Integrated into ICAAP and credit risk. Must fold environmental and social risks into broader risk management frameworks - RBI guideline 2021.
4. Metrics and Targets:
   • Financed emissions - Scope 3 Category 15 - Using PCAF standard
   • Exposure to carbon-intensive sectors
   • % of portfolio aligned to taxonomy
   • Internal carbon price

Two-Tier:

• Baseline: For all Scheduled Commercial Banks, Small Finance Banks, Tier IV UCBs, Top layer NBFCs - Basic governance + qualitative strategy
• Enhanced: For larger banks - Quantitative metrics, financed emissions targets, scenario analysis

Plus RBI-CRIS - Climate Risk Information System - Data platform to collect.

Timeline: Draft comments closed Oct 2024. Final expected 2026. Voluntary adoption from FY 2025-26, mandatory from FY 2027-28 expected.

Other RBI Guidelines:

• 2021 - Guidelines on climate risk and sustainable finance - Banks to fold E&S risks into risk management
• 2023 - Framework for Acceptance of Green Deposits - Bank must disclose use of proceeds of green deposits, third-party verification to avoid greenwashing.
• 2024 - IFSCA Circular F. No. IFSCA-DSF/6/2024 - Principles to mitigate risk of greenwashing in ESG labelled debt securities - Applies to banks issuing green bonds at GIFT City.

C. Other Indian Requirements:

• Companies Act 2013 Sec 135 - CSR reporting
• SEBI ESG Fund Rules - For mutual funds of banks - Must disclose ESG strategy, 65% of AUM in ESG label, monthly portfolio disclosure
• BRSR Core Assurance - SEBI requires assurance by external auditor from FY 24-25

II. Global Frameworks Applicable to Indian Banks with Overseas Operations

• ISSB IFRS S1 and S2 - 2023: Global baseline. S2 is climate-related disclosure - Adopted by many jurisdictions. India aligning BRSR Core with IFRS S2.
• EU CSRD - Corporate Sustainability Reporting Directive: If Indian bank has subsidiary in EU, must report under CSRD - Detailed ESRS - Double materiality - EU's turning point.
• EU SFDR: For funds marketed in EU
• US SEC Climate Rule 2024: Scope 1,2 disclosure for listed foreign private issuers
• UK FCA Anti-Greenwashing Rule 2024: All sustainability claims must be fair, clear, not misleading, substantiated.

III. Case Laws - Where Banks Failed ESG Reporting

1. ASIC v Vanguard Investments Australia Ltd (No 2) FCA 1086 - Australia[2024]

Federal Court civil penalty decision. Vanguard marketed ESG-screened fund with exclusionary screen - e.g., no fossil fuel. Actually held companies with fossil fuel exposure. Regulator ASIC sued for misleading conduct. Court found greenwashing but reduced penalty - Setback to regulator's push to ratchet up penalties. Principle: Exclusionary screen must be actually applied, not just policy.

Lesson for Indian bank MF: SBI ESG Fund, Axis ESG Fund - If BRSR says excludes coal but portfolio has coal mining company, ASIC-type action under SEBI PFUTP possible.

2. SEC v BNY Mellon Investment Adviser - USA - 2022

SEC found between July 2018 and September 2021, bank marketed certain ESG-labeled funds as being under rigorous ESG screening. SEC investigation found no such screening applied to many investments.

Settled for $1.5m + censure. Followed by Spence v American Airlines, SEC v BNY Mellon, Gatz Properties v Auriga Capital showing growing judicial awareness of greenwashing risks under Delaware law.

3. SEC vs DIMA - DWS Case - Germany / USA - $25 million - 2023

Most high-profile. Individual responsible for ESG issues at asset manager within which a well-known European investment bank holds stake raised concern about true amount of investments subject to ESG. SEC fined DIMA $25 million for materially misleading statements about credentials. Marketed as leader in ESG while failing to implement key provisions of global ESG policy and lacking accurate procedures.

Similar to Deutsche Bank DWS raid by German police 2022.

4. Goldman Sachs Asset Management - Nov 2022 - $4 million settlement

SEC settled for failure to follow policies for ESG funds - marketed but did not follow.

5. HSBC Greenwashing - UK ASA + Net-Zero Banking Alliance Exit

UK Advertising Standards Authority banned HSBC ad - Ad showed HSBC planting trees, but omitted financed emissions from fossil fuel. Held misleading.

2024-25: HSBC exited Net-Zero Banking Alliance citing concerns over greenwashing exposure amid geopolitical uncertainty. Marks shift - Banks fear if they claim Net-Zero by 2050 but continue financing oil, they face litigation.

Greenwashing in Indonesia's Banking Sector report cites HSBC case as example of violation of responsible investment principle.

6. BNP Paribas - First Climate Lawsuit Against Commercial Bank - France - Feb 2023

NGOs - Oxfam, Friends of Earth - sued BNP Paribas under France's Duty of Vigilance Law 2017. Alleged bank failed to comply with vigilance plan - continued financing oil and gas expansion despite climate commitments. World’s first climate lawsuit against commercial bank.

If Indian banks adopt NZBA commitment but continue lending to new coal - similar duty of vigilance could be argued under BRSR Principle?

7. Standard Bank - South Africa - EACOP Complaint 2025

Fossil Free South Africa lodged greenwashing complaint with Advertising Regulatory Board against Standard Bank's sustainability claims while financing East African Crude Oil Pipeline. Asks ARB to scrutinise 2025 Report to Society and Climate-Related Financial Disclosures.

Indian Legal Risk:

Under SEBI BRSR, your ESG report is legal document now. SEC's ESG enforcement actions, UK FCA anti-greenwashing rule, EU SFDR categorisation regime, and ASIC greenwashing proceedings have collectively transformed sustainability communications from reputational positioning into legally enforceable disclosure. If BRSR says "we are aligned to 1.5C" without scenario analysis, SEBI can prosecute under LODR and PFUTP.

IV. Compliance Checklist for Indian Bank in 2026

For SEBI BRSR:

1. Map 140 BRSR questions - Identify 9 BRSR Core KPIs for assurance
2. Get reasonable assurance from external auditor - Not limited assurance
3. GHG inventory - Scope 1,2 mandatory, Scope 3 financed emissions - Use PCAF - Loan book / emission factor
4. Board committee - ESG / Risk committee minutes - Show climate oversight
5. No selective disclosure - If you disclose green loan %, also disclose exposure to high-emission sectors

For RBI Draft Climate Disclosure:

1. Create Board-level Climate Risk Policy
2. Classify portfolio by NACE / sector carbon intensity
3. Calculate financed emissions - PCAF Data Quality score
4. Conduct climate scenario analysis - NGFS scenarios
5. Prepare for RBI-CRIS reporting - Data templates

Banks that proactively disclose with assurance avoid greenwashing claims. Banks that market sustainability without data face SEC/ASIC/SEBI actions above.