Business Responsibility and Sustainability Reporting (BRSR) – A challenge as well as opportunity

Milestones in the Evolution of BRR to BRSR

• July 2011: Ministry of Corporate Affairs, Government of India introduced the National Voluntary Guidelines (NVG) which focused on principles of Social, Environmental and Economic responsibilities of businesses.
• August 2012: Business Responsibility Reporting (BRR) was mandated by SEBI for Top 100 listed companies for disclosure on ESG parameters in the annual report. The reports were to be prepared in line with NVG principles.
• December 2015 & November 2019: In December 2015, the mandate was extended to top 500 listed companies of India, and finally in November 2019 the mandate was extended to top 1,000 listed companies of India by market capitalisation. To comply with the mandate, companies were to disclose information on the ESG parameters in the format prescribed by SEBI as part of the annual report or sustainability report.
• March 2019: In order to align the National Voluntary Guidelines (NVGs) with the emerging global concerns, the NVGs were revised and released as National Guidelines on Responsible Business Conduct (NGRBCs).
• March 2021: SEBI board decided to introduce new requirements for sustainability reporting by listed entities i.e., Business Responsibility and Sustainability Reporting (BRSR) which shall replace the BRR.
• May 2021: SEBI issued a circular noting departure from BRR to BRSR for top 1000 listed entities (by market capitalization) and mandated reporting BRSR w.e.f FY 2022-23.

1. Principle 3 – Question on Safety indicators

Q 11: Details of safety related incidents, in the following format:

The above question asks about the company’s Safety performance in the current and previous year. If a company has an internal Safety team, this data will be readily available, and hence requires no new systems to be introduced. Disclosing this data externally serves as an added incentive for companies to improve their safety performance and hence offer a safer workplace to its entire workforce. Since the national peers will also be disclosing this data in the same format through the BRSR, the companies can now easily benchmark their performance against their national peers and possibly share and adopt best case practices across the industry.

2. Principle 5 – Question on median remuneration across hierarchy

Q 3: Details of remuneration/salary/wages, in the following format:

Governance related questions are introduced across the BRSR within Section A and B, and through mostly Leadership indicators within Principles. Under Principle 5, the framework asks for more transparency when discussing Human Rights. The question above is mandatory and asks for the median remuneration of Board members, Key managerial leaders, Employees and Workers – all categories split by gender. This is a major step in the direction of bridging the wealth divide across classes and genders (where relevant) within the country. Strong governance is important across the organisation for all financial and non-financial disclosures. Questions such as this help us see the correlation between social measures/ impact and responsible financial capital.

3. Principle 6 – Question on greenhouse gas (GHG) emissions

Q 6: Provide details of greenhouse gas emissions (Scope 1 and Scope 2 emissions) & its intensity, in the following format:

Global leaders through the Paris Agreement and the more recently concluded COP 26 have pledged to keep a global temperature rise this century well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C. Earlier this year, India also committed to achieving Net Zero emissions by 2070. In order to achieve such targets and mitigate the global risk of climate change, it is crucial to monitor our GHG emission performance and work actively towards reducing the emissions.

Question 6 in BRSR Principle 6 does exactly that. It helps monitor the listed companies’ emissions and understand the emission trend in absolute values and as an intensity. This GHG data is becoming more and more crucial globally. Everyone, right from investors to regulatory authorities are asking for the same. Having these questions in a structured format helps communicate the emission performance effectively and transparently. Auditing the same helps add credibility and ensure that the data is more reliable. Monitoring and mitigation is a strong step toward achieving our national emission reduction goals.

4. Principle 6, 8 – Questions on Impact Assessments

Q 1 - Principle 8: Details of Social Impact Assessments (SIA) of projects undertaken by the entity based on applicable laws, in the current financial year:

A few essential indicators in Principle 6 and Principle 8 include questions regarding the Environment Impact Assessment (EIA) and Social Impact Assessment (SIA) conducted by the company. A leadership indicator in Principle 2 also asks about a Life Cycle Assessment (LCA). These studies are intended to help a company understand the impact of their business on the environment, on society and on their value chain; and (hopefully) create a more positive impact overtime. Such questions encourage companies to delve deeper into their sustainability performance and offer tools to help understand their performance or areas of improvement better. If companies don’t already conduct these studies, they can initiate such science-based studies easily within a reporting cycle.

• Strategic Stewardship & the CFO as Custodian: Sustainability is a philosophy and approach that the corporates should pursue and it will definitely be a top-driven approach. The CFO will play a dominant role in guiding the corporates in the journey of sustainability. Policies are required to be framed and adhered to and the CFOs will be a custodian of the same. In my opinion CFOs will be the key stakeholder in the emergence of sustainability based reporting.
• Systemic Maintenance & Non-Financial Data Depositories: One of the challenges that corporates face across the globe today is systemic maintenance of Sustainability data. Sustainability has a wide coverage from HR and Energy, to governance and accounting. Data is required to be extracted not only from financial systems but also from HR, manufacturing, marketing and various other systems, thus this poses a key challenge in having a depository and ownership. Our experience is that corporates in India as well as in matured economies like US, Europe, Australia, etc. are struggling to fix this issue. This is both a challenge and opportunity for the chartered accountants. They can play a huge role in the corporates in creating a system-based depository of data and ensure its credibility.
• Assurance as a Process of Governance & Firm Revenue Frontier: ESG reporting will result in humungous amount of data to be reported. This means the corporates, as a process of governance, will require assurances before reporting the data. This opens up a new avenue to the practising chartered accountants, which would be exciting as well as challenging. I will not be surprised if this constitutes a significant chunk of revenue to the firms in days to come.