ESGNexus.lk · Policy & Regulation
Every company listed on the Colombo Stock Exchange is now subject to a comprehensive set of ESG-related governance obligations — many of which took effect in October 2023, with the ESG Sustainability Policy requirement added in October 2024. Most boards are not fully compliant. Here is a clear-eyed assessment of what the rules require and what good governance looks like in practice.
By the ESGNexus Editorial Team · June 2026 · Estimated reading time: 7 minutes
KEY TAKEAWAYS
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Most Sri Lankan corporate directors view the Securities and Exchange Commission as a capital markets regulator focused on financial disclosure, insider trading, and listing compliance. That perception is now materially incomplete. Since October 2023, the SEC’s revised Corporate Governance Rules have embedded a significant set of ESG governance obligations into the Colombo Stock Exchange’s listing requirements, and the full scope of those obligations is not well understood by the companies that must comply with them.
This article provides a clear, practical account of what the SEC’s ESG governance framework actually requires, why it matters beyond mere compliance, what the Colombo Stock Exchange’s planned ESG index means for listed companies, and where the governance gaps most commonly lie.
High standards of Corporate Governance with accountability and transparency are critical to building investor confidence in the capital market and are therefore a priority on the SEC’s regulatory agenda.
— Securities and Exchange Commission of Sri Lanka, September 2023
What the SEC’s Revised Rules Actually Require
In September 2023, the SEC announced revisions to Corporate Governance Rules applicable to all entities listed on the Colombo Stock Exchange, effective from 1 October 2023. The revisions were developed through a formal process of stakeholder and public consultations, and were described by the SEC as aligning with global best practices.
The requirements fall into two broad categories: board structure requirements and board policy requirements. Both are directly relevant to the ESG governance pillar.
Board Structure Requirements (effective October 2023):
- Minimum of five board members at all times
- Separation of the Chairman and Chief Executive Officer roles
- Appointment of a Senior Independent Director in specified circumstances
- Fit and Proper Assessment Criteria for all directors and CEOs
- Clear criteria for determining director independence
- Mandatory establishment of: Nomination and Governance Committee, Remuneration Committee, Audit Committee, Related Party Transactions Review Committee, and, where appropriate, a Risk Committee
Board Policy Requirements — what must be published on the company website and referenced in the annual report:
- Risk Management and Internal Controls policy
- Relations with Shareholders and Investors policy
- Whistleblowing policy
- Corporate Disclosures policy
- Anti-Bribery and Corruption Policy
- Environmental, Social and Governance (ESG) Sustainability policy — mandatory from October 2024
The ESG Sustainability Policy requirement — the most directly relevant to this platform’s readership — came into force a full year after the other policy requirements, on 1 October 2024. This means that as of the date of this article, the ESG Sustainability Policy has been mandatory for all CSE-listed companies for over eighteen months. Based on available evidence, compliance levels remain uneven.
Source: Lanka Business Online, ‘SEC Announces Enhanced Corporate Governance Rules’, September 2023; Varners, ‘A New Corporate Governance Regime For Listed Companies In Sri Lanka’; Daily FT, ‘Corporate Governance Listing Rules on Board policies’, June 2024
| Requirement | In Force Since | Where to Disclose |
|---|---|---|
| Board Policy on ESG Sustainability | October 2024 | Company website + Annual Report |
| Board Policy on Anti-Bribery and Corruption | October 2023 | Company website + Annual Report |
| Board Policy on Whistleblowing | October 2023 | Company website + Annual Report |
| Board Policy on Risk Management and Internal Controls | October 2023 | Company website + Annual Report |
| Board Policy on Relations with Shareholders and Investors | October 2023 | Company website + Annual Report |
| Board Policy on Corporate Disclosures | October 2023 | Company website + Annual Report |
| Nomination and Governance Committee | October 2023 | Annual Report |
| Remuneration Committee | October 2023 | Annual Report |
| Audit Committee | October 2023 | Annual Report |
| Related Party Transactions Review Committee | October 2023 | Annual Report |
| Minimum 5 Board members | October 2023 | Annual Report |
| Chairman and CEO role separation | October 2023 | Annual Report |
Source: CSE Corporate Governance Rules, Section 9 (effective October 2023, updated October 2024); Varners Law, ‘A New Corporate Governance Regime For Listed Companies In Sri Lanka’
The ESG Sustainability Policy — What It Actually Means
The ESG Sustainability Policy requirement is the most significant addition to the governance framework for ESGNexus’s audience, and it is worth unpacking what it actually entails. The requirement is not simply to have a policy on paper. The rules require listed companies to:
- Establish and maintain a Board-level ESG Sustainability Policy
- Publish the full policy on the company’s website
- Include the policy details and implementation progress in the Annual Report
- Disclose any changes to the policy in the Annual Report
The board-level framing is significant. This is not a document for the sustainability team or the communications department. It is a governance instrument that the Board of Directors is required to own, maintain, and be accountable for. Companies that have simply published a sustainability section in their annual report without a board-approved, website-published ESG policy are not compliant.
What a credible ESG Sustainability Policy should cover — drawing on the SEC’s governance framework and international practice — includes: the board’s oversight structure for ESG matters, the company’s material ESG priorities and how they were identified, key ESG targets and the metrics used to track progress, the company’s approach to ESG risk management, and the process for engaging stakeholders on sustainability matters.
A board-level ESG Sustainability Policy is not a communications document. It is a governance instrument. The board must own it, maintain it, and be accountable for its implementation.
The CSE ESG Index — What It Is and Why It Matters
Alongside the regulatory requirements, the Colombo Stock Exchange has been developing an ESG rating system and ESG index for listed companies. The history of this initiative reveals a great deal about the current state of ESG governance among Sri Lankan listed companies.
The CSE first announced plans to introduce an ESG rating system and ESG index in December 2023, with an initial target of launching in the first quarter of 2024. The index was intended to comprise around 15 to 20 companies — a small initial cohort of the strongest ESG reporters on the exchange. The CSE had partnered with an international rating agency to conduct the assessments, with all costs to be borne by the exchange itself.
The project did not launch on schedule. In June 2024, CSE Chairman Dilshan Wirasekara confirmed that the ESG index had been postponed by 12 to 18 months because too many listed companies did not meet the required international standards. His assessment was direct: the CSE study found that too few companies had complied with the international standard to make the index viable at that point.
The subsequent mandatory SLFRS S1 and S2 sustainability reporting requirements — which came into force for the top 100 CSE companies from January 2025 — were explicitly identified by the CSE Chairman as a catalyst for the index. Once the standard of ESG reporting improves as a result of mandatory disclosure, the conditions for a credible index will be in place.
The CSE’s ESG index was delayed because too many listed companies did not meet the required standards. That delay is not a sign the index has been abandoned — it is a sign that the bar is real and that compliance quality will determine who is included when it launches.
For listed companies, the stakes of the ESG index are meaningful. Inclusion in an ESG index provides institutional investors with visibility, particularly among the growing pool of international fund managers with ESG mandates. Exclusion — or failure to qualify — carries reputational and eventually commercial consequences. The over USD 120 trillion in assets managed by members of the UN Principles for Responsible Investment is not a figure that listed companies on the CSE can afford to ignore.
Source: The Morning, ‘CSE initiates ESG rating system and index’, December 2023; The Morning, ‘Colombo Stock Exchange ESG index delayed by 12-18 months’, June 2024; The Morning, ‘CSE mandates sustainability reporting for top companies’, 2025
The SEC-CSE-CFA MOU — What It Signals
The formal partnership between the Securities and Exchange Commission, the Colombo Stock Exchange, and CFA Society Sri Lanka — formalised through a Memorandum of Understanding — is a further signal of the direction of travel. The MOU was established specifically to:
- Educate investors on ESG, the importance of effective ESG practices, and the disclosure of sustainable reporting by listed companies
- Encourage capital market practitioners to introduce ESG into their investment research and valuation processes
- Ensure that professional standards and integrity are maintained in the Sri Lankan capital market in relation to ESG matters
The SEC has also published an ESG Guide to Investing, available on its website, designed to help investors understand ESG factors and how to use them in investment decisions. The guide reinforces that ESG is now a formal part of the SEC’s investor protection and market development agenda, not a peripheral concern.
The CFA Society Sri Lanka’s decision to introduce a Best ESG Reporting Award at the 2024 CFA Society Sri Lanka Capital Market Awards is a further market signal. Peer recognition for strong ESG reporting creates a competitive incentive — the companies that win this award will use it as a commercial and reputational asset. The companies that are not in contention will increasingly need to explain why.
Source: SEC Sri Lanka, ESG Guide to Investing — sec.gov.lk; Daily Mirror, ‘CSE sees growing trend among listed entities adopting ESG standards’, May 2024
Where the Governance Gaps Are
Based on available evidence from the GRI’s 2023 Sustainability Reporting in Sri Lanka survey and from CSE’s own assessment that led to the ESG index delay, the most common governance gaps among listed companies fall into three areas.
The ESG Sustainability Policy gap. As noted above, this requirement only became mandatory in October 2024. Many companies have a sustainability section in their annual report but have not established a board-approved, website-published ESG policy meeting the SEC’s requirements. This is the most immediately addressable gap — and the one with the clearest regulatory timeline.
The Board Sustainability Committee gap. While the SEC rules do not yet mandate a standalone Board Sustainability Committee — oversight can be assigned to an existing committee — companies that have not formally assigned ESG oversight to any board committee are not in a position to produce a credible ESG Sustainability Policy. Establishing the governance structure is the prerequisite for everything else.
The disclosure completeness gap. The GRI’s 2023 survey found that governance disclosures were generally satisfactory among GRI-reporting companies, with one notable exception: the Annual Total Compensation Ratio — a governance transparency metric — was almost universally avoided, with most companies citing confidentiality. This pattern suggests that compliance with governance disclosure requirements is more widespread than compliance with their substance.
What Boards Should Do Now
For listed company boards and company secretaries, the action list is clear and sequenced. None of these actions requires significant resources. They require attention and accountability.
- Audit current policy compliance. Check whether all six board policies — including the ESG Sustainability Policy — are established, board-approved, published on the company website, and referenced in the most recent Annual Report. This is a straightforward compliance check that should take no more than a day.
- Establish board-level ESG oversight. If the board does not have a formal mechanism for overseeing ESG matters, assign oversight to an existing committee — most commonly the Audit Committee or the Nomination and Governance Committee — and document this in the committee’s terms of reference.
- Develop or strengthen the ESG Sustainability Policy. The policy should cover the board’s oversight structure, the company’s material ESG priorities, key targets and metrics, the approach to ESG risk management, and stakeholder engagement. It should be a working document that the board reviews and updates annually — not a static statement.
- Prepare for the ESG index. Companies that want to be considered for the CSE ESG index when it launches should be building the ESG data infrastructure now. The international rating agency that the CSE has engaged will assess disclosure quality — not intentions. Start with the data that mandatory SLFRS S1 and S2 reporting already requires: GHG emissions, board composition, governance policy disclosures.
- Engage your company secretary and legal counsel. The governance requirements are detailed and legally grounded. Company secretaries should be briefed on the full requirements, and legal counsel should confirm that the company’s disclosures meet the SEC’s standards — not just the spirit of the rules.
The companies that build credible ESG governance now — board oversight, published policies, transparent disclosures — will be better positioned for inclusion in ESG indices, for green lending terms, and for institutional investor engagement. The companies that wait for enforcement pressure will find themselves catching up in a market that has moved on.
The Bigger Picture
The SEC’s governance framework, the CBSL’s Sustainable Finance Roadmap 2.0, and CA Sri Lanka’s mandatory sustainability reporting standards are three distinct regulatory instruments — but they are pointing in the same direction. Taken together, they constitute a coherent national framework for ESG governance and disclosure that, when fully implemented, will put Sri Lanka’s corporate sector on a par with more developed markets in terms of transparency and accountability.
The window for proactive compliance — before enforcement attention intensifies — is narrowing. Companies that treat these requirements as box-ticking exercises will find themselves repeatedly having to upgrade. Companies that treat them as a genuine governance improvement programme will find that the incremental cost of each step becomes smaller as the foundations are built.
ESGNexus will track ESG Sustainability Policy compliance among CSE-listed companies and publish findings as part of our ongoing company profile work. If your company has established and published a credible ESG Sustainability Policy, we want to cover it. If it has not, we will note the absence. Subscribe to the ESGNexus Weekly for regular updates on governance compliance across Sri Lanka’s listed sector.
Sources & Further Reading
SEC Sri Lanka — ESG Guide to Investing: sec.gov.lk/wp-content/uploads/2023/01/Environmental-Social-and-Governance-ESG-guide-to-Investing.pdf
SEC Sri Lanka — Corporate Governance Rules (effective October 2023): sec.gov.lk
Lanka Business Online — ‘SEC Announces Enhanced Corporate Governance Rules’, September 2023: lankabusinessonline.com
EconomyNext — ‘Sri Lanka listed firms under ESG, anti-bribery rules from October: SEC’, September 2023: economynext.com
Varners Law — ‘A New Corporate Governance Regime For Listed Companies In Sri Lanka’: varners.law
Daily FT — ‘Corporate Governance Listing Rules on Board policies’, June 2024: ft.lk
The Morning — ‘CSE initiates ESG rating system and index’, December 2023: themorning.lk
The Morning — ‘Colombo Stock Exchange ESG index delayed by 12-18 months’, June 2024: themorning.lk
The Morning — ‘CSE mandates sustainability reporting for top companies’, 2025: themorning.lk
Daily Mirror — ‘CSE sees growing trend among listed entities adopting ESG standards’, May 2024: dailymirror.lk
GRI — ‘Sustainability Reporting in Sri Lanka 2023: Connecting the Dots’: globalreporting.org
| ABOUT ESGNEXUSESGNexus is Sri Lanka’s independent platform for ESG, CSR, and sustainability intelligence. We track ESG performance, regulatory developments, and sustainability data across Sri Lanka’s listed companies, large unlisted corporates, and state-owned enterprises. All editorial content is independently produced. Sponsored content is clearly labelled.
Data disclaimer: Information in this article is sourced from publicly available documents. ESGNexus does not independently verify company disclosures. Errors and omissions excepted. |