Integrating Sustainability in Banking and Strengthening Disclosures with the BRSR Mandate

The world over, with increased focus on responsible business conduct, sustainability reporting has become crucial. SEBI has mandated the Business Responsibility and Sustainability Report (BRSR) for India's top-listed entities, including banks. This article explores how the banking sector can promote sustainability and use BRSR to catalyse the integration of sustainability with strategy. It also examines the significance of ensuring credibility to BRSR disclosures and the role of Chartered Accountants in adding credibility to the disclosures.

Introduction

Realisation of the gravity of climate change and social inequalities has led to international initiatives such as the United Nations' Sustainable Development Goals (SDGs) and the Paris Agreement. These initiatives have pushed governments and businesses to look beyond economic growth and profits. Investors increasingly scrutinise environmental, social, and governance (ESG) performance as closely as financial performance. Meanwhile, businesses need significant financing to transition to more sustainable business models and processes.

Banks, as conduits of credit flow and doubling as institutional investors, can give sustainability measures a real head start. Further, the present environment requires that banks must introspect their own strategy and operations, aligning themselves with sustainability principles, and making disclosures that depict their contributions to sustainability more accurately.

Sustainability and the Banking Sector

Banks can promote sustainability in two major ways:

(i) Responsible Lending and Investment Practices

• PSL Norms: At the basic level, banks can serve the ends of sustainability by ensuring that funds reach the places where they are most needed. One of India's regulatory mechanisms to that end is the Priority Sector Lending (PSL) norms of the RBI. PSL focuses on areas like agriculture, MSMEs (Micro, Small and Medium Enterprises), export credit, education, housing, social infrastructure, and renewable energy. Banks must lend 40% of Adjusted Net Bank Credit or Credit Equivalent of Off-Balance Sheet Exposures, whichever is higher, to the priority sectors.¹ However, PSL is only the starting point.
• Sustainability-conscious Criteria for Evaluating Loan Proposals: Worldwide, banks increasingly adopt more sustainability-conscious criteria for evaluating loan applications. For instance, they may recalibrate their exposure to heavy-polluting industries or those with unverifiable labour practices as a matter of policy. Beyond applying ESG criteria in standard credit evaluation, structured sustainable lending products have evolved that go further. The Green Loan Principles issued by the Loan Market Association (LMA) describe green loans as instruments where proceeds are exclusively applied to finance or refinance eligible green projects, with requirements for project evaluation, management of proceeds, and reporting.² Separately, LMA describes Sustainability-Linked Loans (SLLs) as loans where the use of proceeds is unrestricted, but the pricing (interest rate) is tied to the borrower's performance against pre-agreed, measurable sustainability performance targets (SPTs) such as reduction in carbon emissions, improvement in energy efficiency ratings and so on.³ In the EU, disclosure mandates like the Sustainable Finance Disclosure Regulation (SFDR)⁴ require financial institutions to disclose how sustainability is integrated into their investment and lending decisions. Indian banks that proactively build green and sustainability-linked loan portfolios will be better placed when these become regulatory mandates.
• Responsible Investment Decisions: The investments made by banks, due to the sheer volume, are closely followed by markets and regulators. Hence, it becomes important that they consider sustainability criteria in their investment decisions along with financial performance. To signal sustainable investing more explicitly, banks can subscribe to green bonds issued by corporates, municipalities, and sovereigns. Green bonds are fixed-income instruments where proceeds are earmarked exclusively for financing or refinancing eligible green projects.
• Discharging Stewardship Responsibilities: Though they may not have significant influence in the boards of investees, as institutional investors, they can hold the boards accountable. As stewards of public money, banks must discharge their stewardship responsibilities as envisaged by the OECD (Organisation for Economic Cooperation and Development).⁵ They can foster respect for sustainability and better governance by actively engaging with the boards of their investees on sustainability concerns.

Besides responsible lending and investment practices, banks must focus on their own strategy and operations aligning with sustainability.

(ii) Integrating Sustainability with Strategy and Risk Management

• Interweaving Sustainability and Strategy: Banks' strategy must be aligned with the opportunities and threats associated with long-term environmental and social changes. This will include refining and redefining their business model, products and services, operations, pricing and presence.
• Immediate Measures: At a more immediate level, some of the measures that banks can take include developing green financial products, investing in sustainable infrastructure, housing branches in green buildings, setting up inclusive workspaces with improved accessibility, using green materials for interiors, adopting energy efficient practices, implementing effective waste management, and so on.
• Sustainability and Risk Management: While there is already a strong risk management framework with the Basel-III norms⁶ and RBI's supervision, identifying and addressing climate risks has become a priority. The Basel Committee on Banking Supervision has released principles for addressing climate-related financial risks.⁷ RBI has also issued a Discussion Paper on Climate Risk and Sustainable Finance in 2022,⁸ and a Draft Disclosure framework on Climate-Related Financial Risks in 2024.⁹ Climate risks need to be considered both at an entity level and at an individual loan or investment level. In credit risk analysis, performing scenario analyses on the impact of extreme weather events on specific loan portfolios like real estate or agriculture will help integrate climate risks.

Banks' strategy must be aligned with the opportunities and threats associated with long-term environmental and social changes. This will include refining and redefining their business model, products and services, operations, pricing and presence.

This process of reinforcing strategy, operations and risk management with sustainability has the added benefit of improving efficiency, reducing wastages, and enhancing goodwill of the bank in the process in the short run, while ensuring the bank's survival and success in the long run. Adopting a good sustainability reporting framework can provide a structured and goal-oriented way to achieve this integration of sustainability with strategy.

The BRSR Mandate

The National Guidelines for Responsible Business Conduct (NGRBC) were issued by the Ministry of Corporate Affairs in 2019. The NGRBC evolved a framework of nine principles aimed at responsible business conduct and mapped them to the UN's SDGs.¹⁰ Modelled on this, SEBI has mandated the Business Responsibility and Sustainability Report (BRSR) as part of the Annual Report for the Top 1,000 listed entities by market capitalization, which includes several banks as well. The updated version is applicable from 2023-24.¹¹

(i) The Anatomy of BRSR

The BRSR consists of three sections:

Section A of BRSR – General Disclosures: This section requires basic disclosures on the details of the listed entity, its products/services, its operations, employees, group entities and joint ventures, corporate social responsibility (CSR) and compliance with transparency and disclosure requirements.

Section B of BRSR – Management and Process Disclosures: It contains disclosures relating to the existence of policy and management processes surrounding principles and questions about governance, leadership and oversight.

Section C of BRSR – Principle-wise Performance Disclosures: The nine principles outlined in the NGRBC and adopted by BRSR are as follows:

This section requires disclosures under the nine principles, measured in terms of:

• Essential indicators — matters that are expected of an entity as a basic level of responsible business conduct, and
• Leadership indicators — matters that demonstrate taking leadership towards sustainable practices in the ecosystem in which the business operates. Usually these involve extending the actions required under essential indicators to value chain partners (like customers and suppliers).

(ii) Strengths of BRSR Framework

• Granularity and Specificity of Disclosures: BRSR prioritises in-depth data more than vague, open-ended, or subjective statements. Granularity and specificity render measurability, comparability, and tangibility to the disclosures.
• Judicious mix of Quantitative and Qualitative Disclosures: The most information requirement is volume-based/quantitative instead of in monetary terms, for example, metric tonnes of waste generated, energy consumption in joules, etc. To render comparability, sometimes, monetary units are also used, for instance, greenhouse gas emissions per rupee of turnover. To put things into perspective, qualitative disclosures like details of public policy positions advocated by the entity, mechanisms to prevent adverse consequences to the complainant in discrimination and harassment cases, etc. also form part of the report.
• Fixed and Simple Disclosures: The disclosures are not customizable or open-ended like in other disclosure frameworks. This makes the exercise apt for nascent stages of sustainability reporting. This also makes it less susceptible to 'creative' reporting. There are no complex introspective exercises necessitated before making disclosures as in other frameworks. Here, the entity can dive into disclosures right away and the lessons on sustainability are learnt on-the-go.
• Forces Robust Data Collection Systems: The very exercise of filling BRSR forces identification of information gaps and blind spots. This in turn forces developing robust reporting mechanisms, and better discipline not just in reporting but also in operations.

While the BRSR framework provides a strong foundation, its current scope leaves certain critical areas, particularly financed emissions, to voluntary initiative. The following approaches can help banks go beyond the minimum.

(iii) Expanding the Impact of BRSR for Banks

• Measuring Financed Emissions: Among the various sustainability metrics, the most consequential one for banks is financed emissions, which tells how much emission is being financed by the bank. The Partnership for Carbon Accounting Financials (PCAF) has evolved a framework to measure financed emissions to help financial institutions measure and report the climate impact of their lending and investment operations.¹² PCAF uses the framework of the GHG Protocol, that is, Scope 1 (direct emissions from operations), Scope 2 (indirect emissions from energy consumed), and Scope 3 emissions (encompassing all value chain emissions). Financed emissions come under Scope 3. Banks, being in the service sector, have relatively lower Scope 1 and 2 emissions; however, financed emissions could far overshadow them. As per the report 'The Time to Green Finance' by CDP, a global not-for-profit organisation, in 2020, out of 332 financial institutions worldwide having a combined asset size of USD 109 trillion that self-reported that time, only 25% reported portfolio emissions.^13,14 The Report observes that the emissions that could be attributed to the investing, lending and underwriting activities were almost 700 times more than their direct emissions. This underlines the urgent need to measure financed emissions for achieving real impact.

It must be noted that BRSR requires disclosures of only Scope 1 and Scope 2 emissions and leaves voluntary disclosure of Scope 3 emissions to the bank's discretion. A 2025 study by Climate Risk Horizons assessing 35 Indian banks found that only about eight reported emissions across all three scopes, while the majority disclosed only Scope 1 and 2, leaving financed emissions largely unaccounted for.¹⁵

However, measuring financed emissions is not straightforward. A bank can only know its financed emissions if its borrowers and investees measure and disclose their own emissions. Large listed entities would be disclosing emissions through their sustainability disclosures under mandates like the BRSR. For other borrowers, emissions may be estimated only using emission factors and broad assumptions. PCAF itself acknowledges this through its Data Quality Score (on a scale of 1 to 5, where 1 represents the highest quality), which allows banks to transparently communicate the reliability of the data underlying their financed emissions estimates.

Even the EU, where sustainability disclosure mandates such as the Sustainable Finance Disclosure Regulation (SFDR)¹⁶ and the Corporate Sustainability Reporting Directive (CSRD)¹⁷ are in place, is still refining how financial institutions should disclose financed emissions in response to practical challenges.¹⁸

However, the data gap and regulatory pause are still not reasons to defer the exercise. Banks may use PCAF's methodology as a starting point, disclosing financed emissions by asset class alongside the applicable Data Quality Score, so that readers can assess the reliability of the estimates. It is also worth noting that RBI's Draft Disclosure Framework on Climate-Related Financial Risks¹⁹ also signals that the regulatory environment is clearly moving towards disclosure of Scope 3 emissions. Also, IFRS S2, a much-relied-upon global framework, does require Scope 3 disclosures including financed emissions. Banks that begin this exercise now, even with estimated data, will be better positioned when stricter regulatory mandates arrive and as borrower-level data improves over time through India's evolving sustainability disclosure ecosystem.

To signal sustainable investing more explicitly, banks can subscribe to green bonds issued by corporates, municipalities, and sovereigns. Green bonds are fixed-income instruments where proceeds are earmarked exclusively for financing or refinancing eligible green projects.

• Alignment with Global Reporting Frameworks: BRSR has conceptual overlaps with sustainability frameworks like the Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), IFRS S1 (General Requirements for Sustainability-Related Disclosures) and IFRS S2 (Climate-Related Disclosures). Adopting these provide global comparability.
• Leveraging Technology and Data: Enterprise-wide collection of data is required to ensure reliable reporting and to track ESG performance.
  • Integrating Sustainability in CBS: The Core Banking System (CBS) may be equipped with sustainability-related modules and additional input fields at transaction level to capture sustainability parameters like units of electricity consumed or wastes disposed in kilogrammes and so on.
  • Dedicated ESG Platforms and AI-driven Insights: Dedicated ESG platforms may provide dashboards, AI-driven alerts, and real-time advanced analytics. The entire ERP/CBS platform may be integrated with the platform and fitted with AI that can sift through the data and point to inconsistencies, study patterns and raise alerts.
  • AI, Automation and IoT: Smart meters or remote sensors that use technologies like RFID, IoT, etc. can capture real-time data from physical objects and convert into executable actions like entries in ERP/CBS.

The Core Banking System (CBS) may be equipped with sustainability-related modules and additional input fields at transaction level to capture sustainability parameters like units of electricity consumed or wastes disposed in kilogrammes and so on.

(iv) How can Boards use BRSR to leapfrog into Sustainability?

• Active Board-level Engagement: BRSR, with introspection, can potentially transform how Boards look at their strategy. Having ESG experts on the Board is ideal. Tracking BRSR parameters should be a regular agenda matter in the board meetings.
• Takeaways from Section B of BRSR: Boards must assess the adequacy of the structures, policies, and processes they have put in place to adopt sustainability. They must also ensure that policies are translated into procedures and actual implementation happens.
• Board Performance: Including sustainability parameters in board performance evaluation criteria will demonstrate the seriousness with which Boards approach sustainability.
• Dedicated ESG Committee: Having a dedicated committee for ESG/Sustainability will enable holistic discussions and decisions on sustainability measures.
• Risk Management Committee: The Risk Management Committee's terms of reference must specifically include addressing ESG risks.
• Internal Controls and Monitoring Mechanisms: For continuous and sustained improvements in ESG performance, monitoring mechanisms are necessary. The adequacy and effectiveness of the structures, internal controls and processes, as well as the quality of data must be regularly monitored.

(v) Building Awareness at Grassroots-level

• Awareness at Branches: Branch personnel should be given awareness on sustainability both at macro-level and at micro-level. They should be made aware on how the loans advanced by them could impact the environment and society depending on where the money flows. Through suitable manuals, they may be instructed to include sustainability parameters in loan proposals. They must also be incentivized to meet ESG targets at the branch-level like reducing carbon footprint of the branch, achieving energy efficiency, and so on.
• Stakeholder Engagement: A participative approach should be adopted as each branch will face different constraints. Inputs of ground-level employees, branch managers, customers and vendors must be taken regularly.

BRSR Assurance / Assessment

(i) The need for Assurance / Assessment Exercises

ESG-themed funds manage trillions of dollars under their fold.²⁰ As more money backs ESG-themed instruments and entities, regulators are wary of greenwashing attempts, where entities make ESG disclosures only to "seem" sustainable rather than being so in reality. Hence, just as how financial statements require statutory audits for credibility, ESG disclosures too require independent scrutiny. Further, since BRSR contains data that may be fragmented across different branches and departments, robust assurance or assessment procedures are required. In a nutshell, third-party assurance on ESG reporting is required for the following reasons:

• Identifying inconsistencies or incomplete data.
• Strengthening internal controls and reporting processes.
• Preventing 'greenwashing' attempts.
• Enhancing trust among regulators, investors, and other stakeholders.

(ii) SEBI's Assurance / Assessment Mandate

• Reasonable Assurance for BRSR Core, now reframed as Assessment or Assurance: BRSR Core refers to a specific subset of BRSR composed of select parameters from various principles. SEBI's July 2023 circular originally mandated independent reasonable assurance of the BRSR Core on a phased basis starting with the Top 150 companies from FY 2023-24, extending to all Top 1,000 by FY 2026-27.²¹ Pursuant to the Expert Committee's recommendations, SEBI, vide its March 2025 circular (since consolidated in the 2026 Master Circular)^22,23, has since replaced this rigid assurance requirement with the option of "Assessment or Assurance." This move came as a result of discussions with stakeholders by SEBI and in the spirit of ease of doing business, as "assurance" has specific connotations in the field of audit. Without diluting the intent to prevent greenwashing, assessments will also be third-party assessment undertaken as per standards to be developed by the Industry Standards Forum (ISF) in consultation with SEBI.²⁴ Considering India is not yet a mature ecosystem for sustainability disclosures, this move may spur more enthusiastic adoption of third-party assessment.
• Limited Assurance for Value-chain Disclosures: Originally, the top 250 listed entities were required to make ESG disclosures for the value chain on a comply-or-explain basis from FY 2024-25 with limited assurance of these disclosures from FY 2025-26. Now, for value chain ESG disclosures, SEBI's March 2025 circular has gone further, making both the disclosure itself and its assessment or assurance entirely voluntary: disclosure on a voluntary basis from FY 2025-26, and assessment or assurance of that disclosure on a voluntary basis from FY 2026-27.
• Industry Standards Forum: SEBI has constituted an Industry Standards Forum to recommend uniform standards for certain matters.²⁵ The ISF has already come up with a reporting standard on BRSR Core. Among others, the document contains a provisional spend-based methodology allowing entities lacking quantity-based fuel and electricity data to estimate Scope 1 and 2 emissions from financial spend data, while recommending migration to quantity-based measurement as soon as practicable.²⁶ While this is a reporting standard, whether separate standards on the exact process of assessment would be released remains to be seen.
• Who can conduct Assessment or Assurance: SEBI has not mandated any professional qualifications or affiliations for carrying out the assurance or assessment exercise. SEBI's circular only requires that the assurance or assessment provider has the necessary expertise and has no conflict of interest. Towards this, SEBI's Expert Committee has referenced IOSCO's Guiding Principle that third-party assessment of sustainability-related corporate disclosures should remain independent of any specific profession.²⁷ The Committee has also mentioned the overarching goal of maintaining professional agnosticism.
• ICAI's Framework for Assurance Engagements and SSAE 3000: Chartered Accountants (CAs) in Practice and CA firms are governed by ICAI's Framework for Assurance Engagements and other applicable Standards while providing BRSR Core assurance. The Sustainability Reporting Standards Board (SRSB) of the ICAI has issued the Standard on Sustainability Assurance Engagements (SSAE) 3000 Assurance Engagements on Sustainability Information.²⁸ It is mandated for assurance reports covering periods ending on or after March 31, 2024. The Standard on Assurance Engagements (SAE) 3410 Assurance Engagements on Greenhouse Gas Statements has also been issued.²⁹ Recently, the SRSB has also issued an Exposure Draft of Standard on Sustainability Assurance SSA-5000 – General Requirements for Sustainability Assurance Engagements.³⁰

The very exercise of filling BRSR forces identification of information gaps and blind spots. This in turn forces developing robust reporting mechanisms, and better discipline not just in reporting but also in operations.

Role of Chartered Accountants in Furthering the Impact of BRSR

CAs can play a meaningful role in furthering sustainability by undertaking BRSR assurance or assessment engagements.

• Experience: CAs' experience in auditing and assurance frameworks, evaluation of internal controls, performing substantive procedures both at entity-level and branch-level, techniques of sampling, application of materiality, and most importantly, in exercise of professional skepticism and professional judgment, can play an effective role in preventing greenwashing. Further, in the context of BRSR of banks, CAs may have experience in bank audits and can leverage their familiarity with the banking environment.
• Adherence to Audit Standards and Code of Ethics: When there is a well-defined audit reporting framework, there is clarity in approach. CAs are required to perform their engagements in accordance with the applicable engagement standards and Code of Ethics issued by ICAI. This naturally renders credibility to the process as well as ensures independence of the professional.
• Assessing Financial Impact of ESG Metrics: Where statutory auditors undertake the assurance or assessment exercise, it may have the added benefit of parallel evaluation of evidence for both the exercises, and unearthing errors and misstatements may be easier.

CAs are required to perform their engagements in accordance with the applicable engagement standards and Code of Ethics issued by ICAI. This naturally renders credibility to the process as well as ensures independence of the professional.

Concluding Thoughts

The BRSR framework can serve as a starting point for implementing sustainability measures. The disclosures made should be a natural consequence of embracing responsible business conduct, and not merely a tick-box response. When banks demonstrate their commitment to environment, social equity and good governance through their sustainability disclosures, businesses will turn to them as a trusted partner for their sustainable financing needs. And in this age when stakeholders stand by "Trust but verify," Chartered Accountants could add credibility to disclosures and valuable insights to the process, and guide banks in their journey towards sustainability.