BRSR- A Wider Scope of Corporate Governance

Sustainability Reporting is a newly developing field that involves revealing and conveying an organization's non-financial achievements, including environmental, social, and governance (ESG) accomplishments and broader influence. In recent times, an increasing number of organizations have begun to compile and share their sustainability reports, whether due to regulatory requirements or voluntarily adhering to established reporting frameworks and guidelines from standard-setting authorities and regulators.

Background

India has emerged as an early adopter of sustainability reporting, placing a growing emphasis on corporate accountability and environmental and societal responsibility. This shift is accompanied by heightened regulatory oversight and progressive market reforms. The Securities and Exchange Board of India (SEBI) has directed the top 100 listed companies by market capitalization to include Business Responsibility Reports (BRR) within their annual reports. This requirement stems from the "National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business" (NVGs) introduced in 2012.

In 2020, the Ministry of Corporate Affairs' Committee on Business Responsibility Reporting proposed a name change for the report, suggesting it be termed the Business Responsibility and Sustainability Report (BRSR) to better encompass the full scope of reporting obligations. This change highlights the evolving nature of reporting requirements.

Following this, in May 2021, SEBI introduced a fresh reporting mandate known as the Business Responsibility and Sustainability Report (BRSR) for listed companies. This directive aims to ensure standardized, comprehensive, and measurable disclosures regarding Environmental, Social, and Governance (ESG) parameters. The introduction of BRSR underscores a concerted effort to enhance transparency and accountability within corporate sustainability reporting in India.

Rationale:

SEBI issued Circular no. SEBI/HO/CFD/CMD-2/P/CIR/2021/562 on May 10, 2021, which mandates the filing of Business Responsibility and Sustainability Reports (BRSR) by the top 100 listed companies based on market capitalization, beginning from the financial year 2022-2023.

The disclosures required from listed companies under the BRSR framework are aligned with the nine principles outlined in the 'National Guidelines on Responsible Business Conduct' (NGBRCs). These principles guide businesses in their responsible and sustainable conduct:

Principle 1: Companies should uphold integrity and governance that is transparent, ethical, and accountable.

Principle 2: Companies should provide goods and services in a safe and sustainable manner.

Principle 3: Companies should prioritize the well-being of all employees, including those within their value chains.

Principle 4: Companies should honor the interests of and be accountable to all stakeholders.

Principle 5: Companies should uphold and promote human rights.

Principle 6: Companies should work towards environmental protection and restoration.

Principle 7: Companies should engage in public and regulatory policy influence responsibly and transparently.

Principle 8: Companies should contribute to inclusive growth and equitable development.

Principle 9: Companies should engage with consumers in a responsible and valuable manner.

This circular underscore SEBI's commitment to encouraging responsible business practices, sustainability, and transparency among listed entities in India. The BRSR framework seeks to ensure that companies adhere to these principles and provide comprehensive disclosures related to their performance in these areas.

Each principal is divided into:

1.    Essential Indicators are to be reported on a mandatory basis.

2.    Leadership Indicators are to be reported on voluntary basis.

The format of BRSR as per Annexure – I id further provided into three sections:

“Section A” This section provides the subtitles for explaining the General Disclosures of the business such as,

I.                    Details of the listed entity

II.                  Products/services

III.                Operations

IV.                Employees

V.                  Holding, Subsidiary and Associate Companies (including joint ventures)

VI.                CSR Details

VII.              Transparency and Disclosures Compliances

“Section B” This section provides a table full of questions on Management and Process disclosures related to the businesses aimed at demonstrating the.

I.        Policy and management processes

II.      Governance, leadership, and oversight

III.    Details of Review of NGRBCs by the Company

IV.    If not, all Principles are covered by a policy, and reasons to be stated.

“Section C” This section offers a platform for businesses to unveil their performance in alignment with the nine principles of NGRBC on a principle-by-principle basis. These principles establish the foundational framework for businesses to validate their involvement in sustainable development. The pertinent data is structured into two segments: "Essential" and "Leadership" indicators. It is mandatory for every business that has embraced NGRBC to disclose information pertaining to the essential indicators, showcasing their commitment to responsible business practices.

Reliability of the reports is important:

Ensuring the dependability of sustainability information through assurance serves to bolster stakeholders' trust in the precision and credibility of the disclosed data, offering valuable insights for informed decision-making to the intended recipients.

Assurance service providers employ a range of national and international standards and frameworks to validate non-financial or sustainability disclosures. Among these, two pivotal assurance standards stand out as widely adopted for the verification of sustainability information:

• Assurance Engagements Other than Audits or Reviews of Historical Financial Information – ISAE3000
• Account Ability 1000 Assurance Standard (AA1000AS) 

The fresh reporting mandates advocate for clear and consistent revelations concerning ESG parameters and the potential risks and opportunities linked to sustainability for Indian listed firms. This strategy empowers companies more effectively showcase their sustainability goals, standing, and achievements to the market, consequently fostering the creation of enduring value. Additionally, it enhances investors' capacity to make well-informed decisions regarding ESG matters.