On February 20, 2023, the Securities and Exchange Board of India (SEBI) released a consultation paper on (ESG) parameters, seeking public comments. The paper proposes the introduction of an assurance-driven reporting regime based on key ESG attributes, referred to as “BRSR Core,” which is a focused subset of the wider Business Responsibility and Sustainability Reporting (BRSR) framework. SEBI introduced the BRSR Comprehensive framework almost two years ago as an ESG-based voluntary disclosure regime to ensure standardized disclosures on ESG-linked parameters from large, listed companies. This move is in line with the growing global trend of companies being held accountable for their impact on the environment and society, and the need for transparency in reporting such impacts. The proposed assurance-driven reporting regime is expected to further strengthen the ESG reporting framework in India and promote sustainable business practices.
Importance of regulatory compliance and environmental reporting practices for Indian companies
Compliance with regulations and environmental reporting serves as crucial for Indian businesses to ensure sustainable business practices and maintain stakeholder confidence. Compliance with environmental regulations and reporting on environmental impacts can assist businesses in identifying and mitigating risks, lowering expenses, and enhancing their reputation. Indian companies are taking measures to improve their reporting practices as they recognize the significance of environmental reporting. It is discovered that businesses that disclosed their environmental performance had superior environmental management systems and were more likely to implement pollution prevention measures.
Environmental reporting can help companies satisfy the growing demand for sustainable products and services, in addition to regulatory compliance. Study shows consumers are prepared to pay more for environmentally beneficial and socially responsible products. By disclosing their environmental impacts and sustainability initiatives, businesses can differentiate themselves on the market and attract consumers who are environmentally conscious.
Mandatory ESG Disclosures
Until the fiscal year 2021-22, the BRSR Comprehensive framework in India allowed the top 1,000 listed companies by market capitalization to voluntarily make ESG disclosures. However, as of the 2022-23 fiscal year, a new regulation requires these businesses to begin making ESG disclosures.
Electronic filing
Companies subject to the BRSR are now required to submit their reports online. The purpose of this regulation is to increase openness and responsibility in financial reporting. The MCA21 site is managed by the Indian Ministry of Corporate Affairs and is where the reports must be submitted. Simplified reporting and easier access for key stakeholders are also benefits of this connection.
Three-Part Structure of BRSR Disclosures:
In order to provide a thorough overview of a company’s sustainability policies, the BRSR framework breaks down disclosures into three categories:
General Disclosures: Important details regarding the company’s profile, governance framework, policies, risk management initiatives, and stakeholder engagement methods are all included in these disclosures. This information paints a complete picture of the company’s dedication to ethical business practices.
Process and Management Disclosures: This part is about the steps the company took to incorporate sustainability into its business plans. Sustainability frameworks, grievance procedures, employee welfare programs, and supply chain sustainability are all included. These disclosures provide insight into the ethical business decisions made by the corporation.
Category-Wise Performance Disclosures: The BRSR framework mandates that businesses report on their progress in adhering to the NGRBC’s nine principles for responsible business practices. Human rights, labour rights, environmental preservation, consumer protection, and community building are all included in these guiding principles. Businesses may choose between two reporting tiers, “essential” (required) and “leadership” (optional), to demonstrate their dedication to socially and environmentally conscious operations.
Benefits and Opportunities for Indian Companies
Companies may improve their capacity to manage ESG risks, fortify their business ethics, and win back the confidence of their stakeholders by reporting on these topics in accordance with the BRSR framework. BRSR conformity is advantageous in the long run, is in line with worldwide standards, and strengthens businesses as a whole.
Companies may protect their long-term viability and maintain resilience in the face of changing market demands by attending to ESG-related risks. ESG challenges including climate change, resource scarcity, and social injustice may have serious consequences for business. Companies may avoid setbacks and better position themselves for the future if they take measures to manage these risks in advance.
By conforming to international sustainability reporting requirements, Indian businesses increase their reputation and appeal to foreign investors and business partners by being BRSR compliant. Companies with strong ESG policies are more likely to attract investment and develop collaborations with organizations that value ethical business behaviour as sustainability becomes a concern for investors throughout the globe.
Trust among investors, consumers, workers, and communities is boosted through open ESG reporting. Companies may increase their reputation and trustworthiness if they are transparent about their ESG performance. Brand reputation and consumer loyalty may both benefit from a company’s demonstrated dedication to doing the right thing in the eyes of its stakeholders, and this is made possible via increased openness.
Companies’ long-term success is ensured by ESG reporting, which helps them spot problem areas, adopt sustainable practices, and respond to changing market and regulatory requirements. By assessing their effects on the world around them, businesses may devise plans to lessen their carbon footprint, boost resource efficiency, encourage diversity and inclusion, and boost local communities’ prosperity. This flexibility and reactivity to ESG concerns is essential for sustained success in today’s dynamic corporate environment.
In order to properly handle ESG problems, businesses throughout the globe are developing positions like Chief Sustainability Officer or establishing whole sustainability teams. Appointing such posts or board committees is not required by SEBI under BRSR, but it shows that a firm is serious about addressing and fulfilling its ESG requirements. Such specialist roles may propel environmental, social, and governance ESG activities, guarantee accountability, and encourage a sustainable company culture.
Investor confidence may be boosted when a business creates a Chief Sustainability Officer post or one with equivalent responsibilities. Major shareholders are increasingly considering a company’s sustainability efforts before investing. Companies may win over responsible investors that put a premium on sustainable investing methods if they show that they have a strong ESG emphasis.
Businesses should rethink their organizational structures to make room for ESG-focused posts or committees. This modification facilitates efficient ESG commitment management and reporting. Companies may drive ongoing improvement in ESG performance by incorporating sustainability concerns into governance structures, which in turn embeds responsible practices into fundamental strategy and operations.
Liability
Businesses need to be cautious of the possible legal repercussions of BRSR reporting. businesses may still be held liable if their ESG-related disclosures are substantially misleading or incorrect, even though securities rules do not specifically demand ESG data disclosure (save for the top 1,000 listed businesses).
Stakeholders throughout the world are turning to the court system to force corporations to address ESG concerns. Some shareholders, known as “activists,” have utilized the law to punish boards of directors for not doing enough to ESG issues. Parent businesses and private equity sponsors may also face claims of responsibility for the conduct of their subsidiaries and portfolio companies, even if those firms are located in a different country.
The U.S. Securities and Exchange Commission (SEC) has looked into possible “greenwashing” by banks and related investment vehicles. Similarly, SEBI in India may use its authority to deal with comparable issues.
To reduce the likelihood of legal repercussions, businesses should be cautious in making their ESG disclosures. Companies may reduce the risk of legal action linked to ESG reporting and increase confidence among their stakeholder base by publishing information that can be trusted.
Conclusion
The BRSR, or Business Reporting on Sustainable Development Goals (SDGs) and Related Targets, is a dynamic framework that is subject to continuous evolution. As the global landscape ESG factors and sustainability considerations evolves, it is anticipated that corresponding adjustments may be made to the BRSR reporting framework in the foreseeable future. The Consultation Paper issued by SEBI explicitly states that the Key Performance Indicators (KPIs) outlined in the BRSR Core will be integrated into the existing BRSR Comprehensive, to the extent that they have not already been incorporated. This integration will be implemented in a revised edition of the latter. The BRSR framework, although essential and driven by good intentions, presents certain challenges for Indian companies, particularly in the area of supply chain monitoring. This is due to the inherent variability of the framework and the potential for its scope to expand as it evolves. As a result, reporting on specific key performance indicators (KPIs) and attributes within the framework may pose difficulties for Indian companies, should they choose to adopt it.
At the present moment, it is mandatory for the top 1,000 listed companies to adhere to the BRSR Comprehensive, albeit without the inclusion of assurance requirements. However, it is anticipated that by the fiscal year 2025-26, these companies may be obligated to furnish or obtain reasonable assurance pertaining to the Key Performance Indicators (KPIs) outlined in the BRSR Core.
