BRSR and its Disclosure Challenges
CA. Heman Sabharwal
The author is the member of the institute. He can be reached at eboard@icai.in.
Business Responsibility and Sustainability Report – An Opportunity for Companies
Context
The push towards climate change adaptation along with responsible corporate behavior has thrusted the investors and companies to embed ESG in their overall business activities. Whilst the globally accepted voluntary frameworks/standards such as Global Reporting Initiative (GRI), Integrated Reporting (<IR>), Sustainability Accounting Standards Board (SASB) are driving the sustainability reporting scenario, several countries have gone to the extent of mandating non-financial disclosures. In April 2021, the Government of New Zealand announced the introduction of legislation that would align climate-related disclosures with the Recommendations of the Task-Force on Climate-related Financial Disclosures (TCFD) mandatory for certain financial services organizations, as well as all equity and debt issuers listed on the New Zealand’s Exchange.
India is not behind in this context. The ESG reporting started as early as 2009 in the country with the Ministry of Corporate Affairs (MCA) issuing the ‘Voluntary Guidelines on Corporate Social Responsibility’. In 2012, SEBI mandated the BRR for the top 100 companies by market capitalization. The mandate was then extended to 500 companies in 2015 and later to 1000 companies in 2019. In the same year The National Guideline on Responsible Business Conduct (NGRBC) was released.
Recently, in May 2021, SEBI came out with a circular (‘SEBI circular1’) introducing BRSR for the top 1000 listed companies by market capitalization with a new prescribed format of sustainability reporting on the ESG parameters.
SEBI Circular and Structure of BRSR
The MCA Committee2 (‘Committee’) examined the NGRBC-BRR framework within the broader context of UNGPs, SDGs, and other widely accepted non-financial/sustainability reporting frameworks and refined/enhanced the BRR to be called the Business Responsibility and Sustainability Report (BRSR).
The SEBI circular mandates BRSR for top 1000 companies by market capitalization from FY2022-23 onwards; keeping it voluntary for FY2021-22. The structure of BRSR format consists of three sections:
1. General Disclosures
Aims to capture basic information of the company such as name, year of incorporation, office address, website, product information, operations, market served by entity, employees, turnover, CSR details etc.
2. Management and Process Disclosures
Captures data on the policy and process put in place by the company and requires companies to provide a web-link of the policies that are on their website. Additionally, it also requests for information on Governance, leadership and oversight.
3. Principle-wise Performance Disclosures
This is further divided into Essential (mandatory) and Leadership (voluntary) Indicators/ Key Performance Indicators (KPIs) which are taken from the nine principles of NGRBC. The indicators in Principle-wise performance are aligned with the Sustainable Development Goals (SDGs).
Figure 1: Structure of BRSR
BRSR circular also provides flexibility to companies already preparing sustainability reports based on international frameworks (such as GRI, SASB, TCFD or <IR>) to cross-refer the information disclosed under such frameworks with the BRSR, thus, avoiding duplication in reporting. It also provides a Guidance Note that shall help companies interpret and understand the requirements under each section for better disclosures.
Advancements in BRSR
Overall, BRSR is an improvement over the BRR. The structure of BRSR now incorporates Essential and Leadership indicators with quantitative, in-depth questions and granular level KPIs. BRSR covers more KPIs under the three pillars of ESG as compared to the BRR, especially around environmental KPIs such as energy, emissions, water and waste, and health & safety indicators.
| Reporting Aspect | Under Former BRR | Under Advanced BRSR |
|---|---|---|
| Emissions Details | Included details on emissions generated by company within permissible limits given by CPCB/SPCB for the financial year. | Comprehensive details on GHG Gas emissions and intensity; other emissions details such as NOx, SOx, Particulate Matter (PM), Persistent Organic Pollutants (POP), Volatile Organic Compounds (VOC), Hazardous Air Pollutants (HAP); and details on GHG reduction projects (if existing). |
| Clean Technology & Energy Initiatives | Disclose if company had undertaken any initiatives for clean technology, energy efficiency, renewable energy or others (web-link provided, if it exists). | Deep quantitative metrics, specific project reporting, tracking energy consumption and conservation across operational boundaries. |
| Historical Comparative Data | Primarily single-year reporting. | Requires companies to disclose current and previous year data for certain KPIs, establishing comparative granularity. |
| Value Chain Coverage | Limited focus beyond immediate direct operations. | Incorporates questions on value chain partners in disclosure questionnaire (training programs conducted, health & safety, working condition assessments, corrective actions undertaken, etc.). |
From this, we can infer the granularity expected from companies in BRSR disclosures.
Semblance with the WEF Metrics
In 2020, World Economic Forum (WEF) International Business Council3 (IBC) after consultation with various stakeholders came up with a common set of metrics, based on five voluntary frameworks: CDP, the Climate Disclosure Standards Board (CDSB), GRI, <IR> and SASB. Similarly, the MCA’s committee report on BRSR framework draws inference from the globally recognized Sustainability Reporting frameworks – UNGC, CDP, GRI, <IR> and ISO 26000.
The following is an attempt to categorize some of the BRSR indicators under the 4 WEF pillars to understand if BRSR broadly covers all the 4 pillars of WEF:
Figure 2: Semblance of BRSR KPIs with WEF Pillars
1. Principles of Governance
Metrics like anti-corruption, composition and board structure, remuneration policies, ethical behavior, stakeholder engagement.
2. Planet
Environmental KPIs such as scope emissions, water consumption, waste disposal, and biodiversity have been partly covered in the BRSR. Details on LCA (Life Cycle Assessment) can also be disclosed under the BRSR framework.
3. People
Retention policy of the entity, R&D Expenses, Social Impact Assessments are common KPIs covered under both.
4. Prosperity
Common metrics include Human rights policies, Diversity and Equality, Wage level, and trainings provided. Health and Safety theme has been partly covered with metrics such as trainings, incident reporting and disclosing Health & Safety management systems.
Potential Enhancements: BRSR partly covers the WEF metrics, there being areas that can be enhanced further in the framework such as implementation of TCFD framework, disclosure on whether the goals and targets set are in alignment with the Paris agreement, societal cost of carbon, land use and ecological sensitivity, societal value generated etc.
Challenges in BRSR Disclosures
As mentioned above, BRSR is a new requirement and has come into being in May 2021. While it is a positive move and a big change over the current BRR, but only time will tell how the India Inc. adopts or embraces the BRSR. Rather than viewing as a compliance requirement, if corporates use introduction of the BRSR as an opportunity to embed ESG aspects into their strategy and operations, it will be easier and more worthwhile to embrace BRSR.
Some of the challenges that companies could face while adopting and implementing BRSR are as follows:
- Continued Challenges: Though BRR was a very simple format, companies found it challenging to complete it, BRSR is much comprehensive in that manner. The question remains if companies can adhere to the same. For example, the National Stock Exchange – Stakeholder Empowerment Services Report “ESG Analysis on 50 listed companies in India”4, pointed out several deficiencies in reporting for various aspects in BRR. These deficiencies are likely to reflect in the BRSR reporting due to the increase of both qualitative and quantitative disclosures.
- Transition Process: The BRR mandate was extended from top 500 listed companies to top 1000 listed companies by market capitalization recently in 2019. While the bottom 500 companies have relatively less experience and were still getting to mature with respect to the BRR disclosures, BRSR poses a significant transitional challenge for these companies.
- Prescriptive Format: Considering that the BRSR has a very specific format to respond upon, companies may find it restrictive and may not be able to disclose information on all initiatives taken other than what the format is requesting for.
- Accountable Disclosures: BRSR structure comprises of mandatory and voluntary KPIs that are to be reported upon. Being a regulatory compliance, it is anticipated that companies will opt to disclose only under the mandatory section. Companies may choose not to disclose voluntary indicators.
- Lack of Assurance Guidelines: There is no mention of third-party assurance on the BRSR disclosure data. Hence, the challenge lies in the fact that it would be very difficult to authenticate the veracity of information disclosed therein.
- Common Template Structure: BRSR provides a common template that is to be followed by all the companies. Considering that all the questions will not be applicable to all the sectors, hence inter-sectoral comparability will be a challenge, especially for the investors.
- Not Completely Mapped with International Framework: A lot of companies in India are already following some or the other international reporting framework. Considering that companies will not want to stop publishing their sustainability reports following an international standard, completing the BRSR might be a burden to them. Though BRSR gives the option of cross-referencing data points between Sustainability Reporting and BRSR, inconsistency between the definitions of the KPIs may lead to confusion. For e.g., The GRI 403-9 Work related Injuries indicator provides an option to the companies to choose between 200,000 and 1,000,000 man-hours of work for calculating different work-related injury rates. However, the Loss Time Injury Frequency Rate (LTFIR) indicator in Principle 3 of BRSR is calculated per 1,000,000 man-hours of work. This may create a problem for the companies which are looking to map their BRSR indicators with the GRI standards in their Sustainability Report.
Assurance of BRSR
Context
The growth in the number of companies disclosing their non-financial data on ESG performance raises the question pertaining to the credibility of data being disclosed. Sustainability reporting or ESG reporting (as it now being called) always faces a challenge of consistent and accurate disclosures which can be achieved through conducting non-financial data assurance. Also, investors are focusing on embedding ESG aspects in the company’s strategy and their alignment towards developing a low carbon future. Assurance can help ensure the reliability of the data that can help strengthen the trustworthiness of investors and stakeholders.
Further, assurance of non-financial data can lead to improved corporate governance practices, risk management process, improved reporting definitions, scope and methodologies. Also, rating agencies such as CDP and Dow Jones Sustainability index (DJSI) provide a better score if the non-financial data is assured by an independent third-party.
Some of the prominent assurance standards used globally and in India are International Auditing and Assurance Standards Boards (IAASB)’s International Standards on Assurance Engagements (Revised) [ISAE 3000 (Revised5)], ISAE 3410, Account Ability’s AA1000 series of standards and in India ICAI’s Standards of Assurance Engagements (SAE) 3410 on Assurance Engagements on Greenhouse Gas Statements6.
Types of Assurance Engagements as per ISAE 3000 (Revised):
- Reasonable Assurance
- Limited Assurance
Since BRSR is a very important national sustainability reporting tool, it is important that the data presented in the same is also assured to ensure accuracy and credibility. The guidance note on the BRSR can be used as a base for providing assurance on BRSR.
Challenges of BRSR Assurance
As mentioned earlier, while it is yet to be seen how companies adopt the BRSR, conducting an assurance can help companies in complementing their internal processes and enhancing the credibility of information and data that are used to make decisions. However, assurance on BRSR could have the following set of challenges:
- Assurance Not a Mandatory Compliance: Since assurance of BRSR is not mandated, most companies may not see the need to invest in it. Even if they are in full compliance of reporting and disclosing of sustainability/ESG related data under BRSR, without a proper assurance, the data lacks credibility.
- Limited Guidance on Assurance: Sustainability assurance standards sometimes lack preciseness when compared to financial audit standards, the latter being more developed and in existence for a much longer period. Sustainability Reporting Standards Board of ICAI is now taking significant efforts in bridging the gap.
- Possibility of Indicators Material to Business Getting Left Out: With the current practices for assurance, companies may choose the indicators under BRSR that they want an assurance based upon on their reporting strategies, degree of information provided and management systems. This may lead to selection of those indicators for assurance which may not be material to the business of the company.
- Tick in the Box: While BRSR may have become mandatory, most companies have limited knowledge on the importance and usefulness of getting an assurance upon the same.
- Lack of System Improvement: Conducting an assurance leads the corporates to realize the inadequacies and weaknesses in process/controls around data capturing, collation and reporting. As generally companies may not see the need of conducting an assurance of BRSR, it hinders the scope of improvements of such processes and it may also impact the accuracy of information being reported.
There has been a constant development and evolution of non-financial reporting. With time, it has become more forward looking and integrated with defined boundaries and scope. With BRSR replacing BRR, this requires corporates to disclose accurate data in a more holistic manner. Hence, assurance of BRSR should ideally be conducted to provide reliable and credible data for all the stakeholders.
Conclusion
The post-COVID “new normal” narrative revolves around mainstreaming sustainability into business practices. The introduction of BRSR mandate is an inflection point in the Indian ESG reporting scenario which provides an opportunity for the companies to embed sustainability in their core strategy. SEBI has attempted to benchmark it against some of the leading global reporting frameworks, while keeping in mind the local sustainability challenges. BRSR is an attempt to standardize the ESG reporting landscape in India. As an overall format, it tries to encompass KPIs from all the three pillars of ESG.
On a closer look, though BRSR will have transitional and implementation challenges in terms of disclosures, it will pivot the organizations towards more exhaustive non-financial reporting practices, which will be a major contributor in India Inc.’s corporate sustainability journey.
Assurance of BRSR will help companies to disclose reliable and provide credible data under BRSR. It will also help in maintaining transparency and aid all the stakeholders (especially investors) to make better decisions. Corporates, regulators and other stakeholders are the key players who can exercise the need and importance of getting BRSR assured.