Environmental, Social, and Governance (ESG) considerations are no longer a niche concern. Investors and stakeholders are increasingly demanding transparency regarding a company's sustainability practices. Recognising this shift, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Reporting (BRSR) framework in 2021.[1] Now, with the recent update in July 2023, SEBI has further strengthened its commitment to ESG disclosures, making Indian corporate practices more robust and aligned with global standards.[2]
The Initial BRSR Framework
The initial BRSR framework, introduced in 2021, mandated the top 1,000 listed companies by market capitalisation to file a BRSR report as part of their annual report with SEBI.[3] This report focused on disclosures aligned with the nine principles of the National Guidelines on Responsible Business Conduct (NGRBCs). These principles encompass aspects like ethical business conduct, labour practices, human rights, environmental stewardship, and stakeholder engagement.[4] The BRSR served as a significant step towards promoting responsible business practices in India.
BRSR Core and Value Chain Disclosures
SEBI's recent update, encapsulated in the BRSR Core framework, consists of a set of key performance indicators (KPIs) under 9 ESG attributes. Considering the significance within the Indian/Emerging market context, several new KPIs have been identified for assurance, including metrics such as job creation in small towns, business transparency, and total wages paid to female employees.
The changes as under the latest notification are discussed in detail as follows:
· Enhanced ESG Disclosures: With the new notification, BRSR Core has been introduced for the top 250 listed entities as per market capitalisation for the FY 2024-25.[5] The BRSR Core prescribes a more comprehensive set of disclosures based on nine key ESG attributes:
Environment: Energy consumption, greenhouse gas emissions, waste management, water usage, and biodiversity conservation.
Social: Diversity and inclusion, employee well-being, human rights in the value chain, and community engagement.
Governance: Board diversity, anti-corruption measures, and risk management practices related to ESG factors.
This expanded scope provides a deeper understanding of a company's ESG performance.[6]
· Focus on Value Chain: The BRSR Core recognises that a company's sustainability impact extends beyond its own operations. It mandates disclosures on KPIs encompassing suppliers, distributors, and other key partners, collectively comprising 75% of its purchases/sales. This holistic approach fosters responsible practices throughout the business ecosystem.[7]
· Assurance Requirements: The listed entity's Board must ensure that the assurance provider for the BRSR Core possesses the necessary expertise for providing reasonable assurance. Additionally, the listed entity must prevent any conflict of interest with the assurance provider. This can be achieved by ensuring that they do not offer non-audit or non-assurance services, including consulting, to the listed entity or its group entities.
CSR Reporting under the BRSR
Details regarding all CSR initiatives taken by the company must form a part of the BRSR report. For each CSR project undertaken by the company, the following information should be provided:
(a) Total number of beneficiaries.
(b) Percentage of beneficiaries belonging to vulnerable and marginalised groups.[8]
Benefits of the Enhanced BRSR Framework
The BRSR Core offers a multitude of advantages:
Increased Transparency and Accountability: The expanded disclosures and focus on value chain provide stakeholders with a clearer picture of a company's sustainability efforts. This transparency fosters accountability and encourages continuous improvement in ESG performance.
Holistic Sustainability Assessment: By incorporating value chain disclosures, the new guidelines provide a more comprehensive picture of a company's ESG impact. This encourages businesses to address sustainability challenges throughout their operations, not just within their own walls.
Enhanced Investor Confidence: Investors increasingly prioritize ESG factors in their decision-making. The BRSR Core equips companies to demonstrate their commitment to sustainability, potentially attracting more ESG-conscious investors.
Benchmarking and Best Practices: The adoption of a standardised reporting framework enhances comparability across reports and facilitates benchmarking and peer comparison. This allows investors and other stakeholders to assess companies' ESG performance more easily and identify leaders and laggards in sustainability practices. This further encourages the adoption of best practices and drives overall improvement in corporate sustainability performance. [9]
Risk Assessment: The expanded scope of reporting and emphasis on assessment ensure that companies focus on disclosing ESG issues that are most relevant to their business and stakeholders. This helps companies better understand their ESG risks and opportunities and enables them to address them more effectively.[10]
Conclusion
The enhanced BRSR framework represents a significant step forward for ESG reporting in India. It fosters a more responsible and sustainable business environment, aligning Indian practices with global trends. As companies adapt to the new framework, continuous improvement in reporting standards, data collection methods, and the availability of ESG assurance expertise will be crucial. As India strives towards a sustainable future, SEBI's BRSR framework serves as a significant step in the right direction, encouraging responsible business conduct and promoting a more ESG-conscious corporate environment. This, in turn, can lead to increased investor confidence, improved brand reputation, and long-term competitive advantage.
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