News and developments
ESG in Insurance Sector in India
The IRDAI (Corporate Governance for Insurers) Regulations 2024 (“CG Regulations”) and the IRDAI’s Master Circular on Corporate Governance for Insurers 2024 of 22 May 2024 require all Indian Insurance Companies to have a Board-approved Environment, Social and Governance (“ESG”) framework and monitor ESG activities. Similarly, the IRDAI’s “Master Circular on Reinsurance” of 31 May 2024 extends these requirements to Branches of Foreign Reinsurers (“FRBs”) and Lloyd’s India.
Previously, ESG considerations were not mandatory for Insurers under the IRDAI regulations. The only environmental guidance involved requiring certain Insurers (fulfilling certain criteria in terms of turnover, net worth or profit) to form a Corporate Social Responsibility (“CSR”) Committee and spend a minimum amount on CSR activities, as mandated by the Companies Act 2013 (“Companies Act”)[[1]].
This article discusses the evolution of ESG in India and the impact of these new requirements on the Indian insurance sector.
Key Points of Difference from the Draft Guidelines
ESG is a methodology that assesses a company's societal impact based on three factors:
Authors: Anuj Bahukhandi and Priti Singh
Footnotes [1] The Companies Act set out an illustrative list of socially responsible activities that may be undertaken by a company to ensure compliance with §135 which includes activities related to ensuring environmental sustainability, ecological balance, and protection of flora and fauna etc.
- Environment: This includes a company's climate change related policies, greenhouse gas emissions, sustainability measures, and compliance with environmental regulations.
- Social: This considers a company's relationships with internal and external stakeholders, such as addressing employee safety and health and social issues like health awareness or disaster preparedness, including in underserved areas.
- Governance: This assesses a company's risk management framework, various forms of reporting/disclosures, accounting methods and diversity in leadership selection.
Authors: Anuj Bahukhandi and Priti Singh
Footnotes [1] The Companies Act set out an illustrative list of socially responsible activities that may be undertaken by a company to ensure compliance with §135 which includes activities related to ensuring environmental sustainability, ecological balance, and protection of flora and fauna etc.