Business Responsibility & Sustainability Reporting (BRSR) is now the medium through which listed companies report matters concerning Sustainability and ESG (Environment, Social and Governance) in the non-financial disclosure part of the annual reports. The BRSR has come a long way since the days it was known as Business Responsibility Reporting (BRR) which had evolved from the National Voluntary Guidelines for Responsible Business Conduct. It is still a work-in-progress.
The BRSR is applicable to the top 1000 companies by market capitalisation. The revised format of the BRSR focusses on the BRSR Core, which has nine key performance indicators subjected to reasonable assurance report by verifying professionals — a form of assurance report.
The assurance requirement starts from the financial year 2023-24 for the top 150 companies progressively extending to others per a glide path prescribed.
An extension of BRSR Core to the value-chain for the top 250 companies from the FY 2024-25 is on cards, to the extent attributable to the company on a comply-or-explain basis.
Further, the value chain disclosures will have to be assurance-reported on a limited assurance basis from 2025-26 on a comply-or-explain basis. As can be seen, SEBI has adopted a time-frame taking into consideration what could be doable.
The main points
BRSR is an amalgam of various global standards having incorporated what are relevant for India without putting too much pressure on the preparers and issuers of annual reports;
(a) BRSR is not inter-operable in the sense that the reporting-entities within a multinational ecosystem will need to tailor-make it for all entities in the system. For example, an Indian subsidiary of an MNC will still need to align its BRSR report to suit the requirements of parent firm located in the EU, the US and countries in the European Free Trade Association etc.
(b) BRSR has two different set of questions to be answered while reporting: (i) Essential indicators and (ii) Leadership indicators.
Reporting on Leadership Indicators is optional since that will require a greater degree of preparation on the managements’ part given that even the Essential Indicators can be challenging going by the experience of most companies.
(c) Going by the feedback from professionals it is obvious that: (i) the information technology (IT) systems are not geared for capturing the relevant information. The general flow of information as currently captured from the grassroots level does not take into account the nature of information required for preparation of BRSR report; (ii) there is also a general lack of awareness and unpreparedness and (iii) there is a shortage of sustainability-trained personnel. This is a global phenomenon.
(d) There is an immediate need for having a relook at the IT systems in order to diversify the reporting structure. Companies should take note that the Digital Personal Data Protection Act, 2023 (DPDP) is already a statute and that the Rules pertaining to it will be announced shortly, making it imperative for firms to take a comprehensive look at their IT systems.
(e) It would be a good idea to prepare the BRSR on a continuous basis rather than leave the exercise to the year end.
Standards and Frameworks
According to one count there were over 600 reporting frameworks in 2015 which, since then, have shrunk into a few globally acceptable standards.
The IFRS sponsored ISSB’s (International Sustainability Standards Board) standards IFRS S1 and IFRS S2 have gained acceptance and similarly, the IFAC’s (International Federation of Accountants) standards for assurance are now the norm.
However, one must take note that these standards are not yet officially prescribed although the prescription of ‘Reasonable Assurance’ by SEBI as the level of assurance required would tilt it in favour of IFAC.
Greenhouse Gases
Greenhouse gases are the main reason for climate change and they are related to the anthropogenic activities. The GHG protocols (World Resources Institute and WBCSD) are the pioneering studies in the measurement of GHG emissions which are classified into Scope 1, Scope 2 and Scope 3.
While Scope 1 is about own emissions in processes employed by an entity, Scope 2 is the gases emitted in generating energy bought by the entities. Scope 3 emissions are by the value-chain and being outside the control of an entity, are the most difficult to measure.
Scope 3 lists 15 types of emissions in the supply chain (includes own carbon footprint). There are eight upstream and seven downstream sources for emissions. Item 15 is an innocuous entry titled “Investments” i.e. financed by an entity. This extends and puts the onus on the lending institutions to ensure that the money being financed to borrowers causes least damage to the environment.
Consequently, banks, now nudged by the Reserve Bank of India are beginning to take interest in the emissions of their borrowers.
New sanctions are getting vetted more thoroughly.
The RBI as a member of “Network for Greening the Financial System (NGFC)”, (a coalition of central banks) has been raising concerns since 2022 about the risks the business community is facing on account of climate change.
Going forward, the monitoring by banks and financial institutions will get more rigorous.
The International Organisation of Securities Commissions (IOSCO) of which SEBI is a member is now engaged in strengthening the reporting structure of Sustainability and ESG.
Other concerns
There are non-tariff trade barriers coming up especially in the EU such as Carbon Border Adjustment Mechanism (CBAM), the anti modern slavery initiatives, the Deforestation disclosures.
Therefore, any entity wishing to do business with the EU will need to consider compliance with the EU reporting standards which will require generation of huge amount of data.
The above are some of the issues and challenges that businesses will face. BRSR is only a starting point.
These challenges have already become risks and require a constant monitoring for their management.
The writer is a Chartered Accountant