Building Sustainability Reporting Maturity – SRMM Version 1.0

Introduction

The triple bottom line framework to the concept of sustainability has gained momentum in terms of increased business sense and encompasses the need for businesses to achieve a balance among its economic, environmental and social bottom lines. Global critical issues such as climate change, gender diversity, energy management, water scarcity, and greenhouse gas emissions, among others, stress the fact that sustainability will continue to be a priority for the foreseeable future. Leading global investment entities investing capital on behalf of pension funds, large institutions and individuals increasingly ask businesses about their environmental and social impact and push for more comprehensive and uniform reporting on sustainability efforts, pushing major global businesses to make significant investments in their ESG initiatives.

This has led an increasing number of businesses to not only integrate sustainability into their business, operational, and developmental activities but also advance for consistent measurement and reporting of their sustainability related attributes. Organisations are required to provide commentary on how their operations/activities are directed towards being more sustainable and resilient. Such disclosures come under the ambit of Sustainability Reporting and are included in Annual Reports or as separate Sustainability Reports.

Sustainability reporting is the systematic presentation of sustainability data/information so that the present data can be compared with the past and used for measuring progress vis-a-vis selected targets. It has become an important strategic tool for businesses with various internal and external motivations:

Sustainability reporting involves the disclosure of information across various ESG parameters for stakeholders of varied concerns/interests. Sustainability information can be both quantitative, such as tons (or units) of greenhouse gas, or qualitative, such as governance processes, the reputation of an organisation or the organisation’s impact on the state of biodiversity. This is where the task of report preparers becomes important and challenging.

These challenges at times result in reactive and tactical, rather than strategic, approaches to sustainability reporting.

Background & Regulatory Evolution in India

In the last three decades, Sustainability Reporting has evolved from the production of environmental reports to broader reports that also cover social issues. At the same time, different reporting frameworks from different regulators/initiators have emerged which call for mandatory or voluntary disclosures. Such disclosure requirements keep pace with the increasing investor focus on sustainable investing as well growing demands from other stakeholders. In response to the understanding of the increasing importance of ESG issues, there has been a significant increase in the number of companies reporting on sustainability. A 2020 study by the World Business Council for Sustainable Development (WBCSD) indicated that sustainability reporting is improving with 78% of companies improving their overall scores and 26% improving their materiality score.

India is increasingly seeking businesses to be responsible and sustainable towards their environment and society with increasing regulatory oversight and progressive market reforms. Regulators have focused on making business disclosures comprehensive and going beyond financial disclosures in the past few years:

Sustainability measurement is prospective, positive and credible assessment which correlates with all components that matter in the organisation. The top management or Board vouches a solid business case for pursuing a sustainability strategy. Boards aim to meet their obligations over sustainability and equally see pressure coming from outside the boardroom, with business leaders feeling that stakeholders are driving sustainability activity and policies. Business leaders rank sustainability second only to financial results in terms of the top issues. There is an equally strong belief that the sustainability principles and intentions of their organisations are delivered by effective business policies and objectives. Boards can manage sustainability in several different ways, and there is no hard and fast rule over the right ways to do it as long as it is managed. The Board is well positioned to steer the sustainability agenda by structuring a strategy and a roadmap covering all the organisation’s resources.

Every organisation will have a unique way of crafting ESG issues and value creation at the centre of business decision making. The Board needs to ensure that there are no disconnects between what they believe is happening, and what the reality is. They need to have a clear understanding of why sustainability is a key boardroom issue — is it an end in itself or does it form part of a wider, integrated business strategy? They need to be able to measure progress on their sustainability journey. In a nutshell, sustainability is a very broad subject area that encompasses many diverse issues. Businesses must adopt a framework or model for sustainability reporting maturity that allows them to identify the actions required to meet the sustainability related needs of customers, employees, and other stakeholders.

The Maturity Model – SRMM Version 1.0

Maturity models are the description of the development of specific capabilities within an organisation over time. Maturity models for a particular capability are built on empirical data derived by studying information of various companies that display varying levels of the capability of interest. Most frameworks for maturity models include four or five levels of maturity, with each level representing a greater degree of competency in the capability than the previous one. All the levels are labelled and refer to a set of behaviours, processes, tools, and outcomes that an organisation at that particular level of competency should demonstrate.

Presently, the non-existence of a comprehensive scoring tool limits Indian companies from aligning their BRR/BRSR with the standardized international scale. The rating agencies and assurance providers are thus unable to compare the sustainable nature of the Indian companies with other international companies. SRMM based on BRSR Scoring provides a quantitative score to the sustainability measurement by converting qualitative information to a measurable and machine-readable quantitative data. The tool would also act as a basis for providing a “comparability index”.

SRMM would also be used to deploy an evolutionary path to help organisations increase the capability of their processes through four consecutive stages or maturity levels. The model offers the possibility for each corporate complying with BRSR to individually assess its position vis-a-vis various sustainability reporting maturity levels and achieve its vision of sustainable business. In other words, the model will help companies identify where their capabilities lie on a maturity continuum. Corporates can self-evaluate their current level of maturity on the SRMM, identify areas where more focus is required, and then develop a road map for upgrading to a higher level of maturity. This would include formulation of strategies for internal controls and data collection to the progress towards achievement of sustainable goals and thereby moving to a higher level of sustainable reporting.

The maturity continuum is associated with four discrete levels of sustainability reporting maturity to becoming a sustainable and responsible enterprise. Each maturity level portrays the present level of sustainability reporting and where a new cycle of reporting starts towards a higher level of sustainability reporting.

BRSR Scoring Breakdown

The model fits well within the corporate reporting framework and is helpful and useful for all stakeholders in identifying the exact maturity level related to the sustainability of an organisation. The organisations would not only know the present maturity level of their sustainability reporting but would also be able to identify and bridge their planning and operational gaps. The regulators and other related organisations can identify organisations that require improvement in sustainability reporting and measurement. Based on the model, investors will also be able to make appropriate decisions toward their current investments and potential future investments by identifying the maturity level of sustainability, as their decisions can be impacted by the level of maturity (for instance, investors can be eager to invest in companies which are more mature in terms of sustainability reporting instead of those which are immature). Last but not the least, the model obliges management to be proactive in implementing ESG focussed decisions as well as showcasing the stakeholder’s improvement in their overall score over a period. SRMM Version 1.0 is the beginning of a more effective sustainability reporting. Further versions would be developed based on feedbacks received and issues identified in implementation of the same.

Mapping of NGRBC Principles with UN Sustainable Development Goals (SDGs)

The BRSR Scoring and SRMM are critical to the survival and resilience of businesses. The non-financial information disclosed in the BRSR provides valuable material information for business decision-making, action-planning and innovation along with information on initiatives, actions and outcomes towards achievement of SDGs. Likewise, BRSR disclosures provide a review against the SDGs of an organisation’s current policies and practices, overall governance structure, initiatives, and gaps in relation to environment and social parameters, such as health and safety, human rights, stakeholder engagement, sustainable and safe goods and services, to name a few.

The BRSR formats are aligned to the broader context of the SDGs so that businesses may also be able to demonstrate their performance on SDG targets. The NGRBC-BRSR formats put together all relevant information on sustainability emanating from the NGRBCs and further depend on the principles of SDGs and UNGPs. The nine principles of NGRBC-BRSR framework are mapped with 17 SDGs as under:

The 2030 Global Agenda of Sustainable Development comprising of 17 SDGs would be broad and ambitious for all businesses to contribute. Organisations should consider how their activities are making a material contribution to (or conversely a negative impact on) achieving the SDGs. Regardless to say, by contributing to just one SDG, other SDGs may be strengthened by default. For example, significant progress on SDG 1 (No Poverty) would bring progress on SDG 8 (Decent Work and Economic Growth) and SDG 12 (Responsible Consumption and Production).

Role of Chartered Accountants in Sustainability & Assurance

In the present dynamic environment where businesses need to extend the boundaries of responsible business conduct, the accountancy profession needs to respond to the growing and enhanced interest in sustainability and call for the contribution of organisations towards sustainable development. ICAI is emerging as a global leader in the domain of sustainability and working on creating a global network of partnership and linkages with the best of related institutions and organisations on issues related to Sustainability Practices and Disclosures and to propagate the use of Sustainability Reporting Requirements and Assurance Standards both for general purpose reporting and/or specifically for a regulatory requirement. Sustainability Reporting Standards Board (SRSB) of ICAI is undertaking several initiatives to strengthen the sustainability reporting ecosystem in the country, build capacity of chartered accountants and creating awareness of stakeholders towards the environmental and social issues through certificate courses for members, webinars for stakeholders, launching sustainability literacy drive, to name a few.

The Government of India has permitted audit firms to transform themselves into multidisciplinary partnerships (MDPs). Thus, Chartered Accountant firms can now tie-up with company secretaries, actuaries, cost accountants, engineers, lawyers and architects to offer a whole bouquet of services. Chartered Accountants can play a key role as internal accountants/auditors as well as external auditors in the sustainability domain. The small and medium firms can scale up and offer a variety of services under one roof while building capacity in the industry. In this regard, accountants need to gain working knowledge of performance measurement and reporting vis-a-vis specific areas such as greenhouse gas emissions applicable to the businesses with which they are involved. However, they may refer to other area specific experts, where necessary. Many Chartered Accountants have up-skilled and specialised in the sustainability domain, for example in green audit, environment audit, CSR audit and the like.

An illustrative list of ways that are directly relevant to the role of chartered accountants as internal accountants/auditors and external auditors is as under:

Conclusion