Introduction
The global focus on addressing climate risks and promoting inclusive, sustainable economic growth is becoming more prominent in policy and regulatory discussions. In this evolving landscape, businesses have a crucial role to play in fostering a sustainable economy by minimizing their adverse effects on society and the environment. Furthermore, investors are progressively acknowledging the value of sustainable business practices and are showing heightened interest in companies that are environmentally and socially responsible. Moreover, there is evidence suggesting that companies that prioritize sustainability and social responsibility tend to outperform their competitors financially over the long run. As investor interest in sustainable practices grows, the importance of sustainability data is rising, making non-financial performance metrics critical for making informed investment decisions. As part of this shift, Indian companies are increasingly recognizing the importance of sustainability reporting and its benefits, such as enhancing transparency and creating value.
Evolution of Sustainability Reporting in India
Sustainability reporting in India is built upon a regulatory environment that is constantly evolving. With India’s commitment to global climate goals and the Paris Agreement, regulations have increasingly gained momentum. Entities such as the Securities and Exchange Board of India (SEBI) have taken notable steps to require listed companies to disclose sustainability information. This reflects an understanding that non-financial aspects significantly impact a company’s long-term viability.
In 2009, the Ministry of Corporate Affairs (MCA) introduced the Business Responsibility Reporting (BRR) guidelines. These guidelines served as a foundational step towards incorporating ESG considerations into corporate reporting.
The Companies Act of 2013 was a pioneering move, introducing early ESG disclosure mandates. Section 134(m) of the Act required firms to include a Board of Directors report on energy conservation alongside annual financial statements, detailed by Rule 8(3)(A) of the Companies (Accounts) Rules, 2014.
In 2015, Regulation 34(3) of the SEBI (Listing Obligations and Disclosure Requirements- LODR) Regulation compelled companies to disclose opportunities, risks, threats, and concerns in their annual reports, though these disclosures often lacked specifics on identifying such opportunities or risks and did not require progress tracking.
In 2017, SEBI issued a circular on “Disclosure Requirements for Issuance and Listing of Green Debt Securities,” supplementing the 2008 SEBI (Issue and Listing of Debt Securities) Regulation. This aimed to establish a regulatory framework for green debt securities to attract funding for ESG-aligned projects.
The Indian Banks’ Association (IBA) released the National Voluntary Guidelines for Responsible Financing, which laid down broad principles for integrating ESG risk management into the business strategy, decision-making process, and operations of financial institutions.
After the introduction of BRR in 2009, the Companies Act, 2013 underwent a pivotal amendment in 2021, launching the Business Responsibility and Sustainability Reporting (BRSR). This made it mandatory for the top 1000 listed companies to disclose their ESG performance under nine specific pillars, underscoring India’s ambition to align with international reporting practices while tailoring them to its unique context.
Key Aspects of India’s 2023 Business Responsibility and Sustainability Reporting (BRSR) Framework
The new BRSR, effective from 2023, aligns more closely with globally recognized reporting frameworks such as the GRI and TCFD. It mandates the top 1,000 publicly listed companies in India to answer 140 questions, comprising 98 mandatory essential indicators and 42 voluntary leadership indicators. These disclosure requirements are organized into nine core categories, based on the principles of the National Guidelines for Responsible Business Conduct introduced by SEBI:
Principle 1: Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable.
Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe.
Principle 3: Businesses should respect and promote the well-being of all employees, including those in their value chains.
Principle 4: Businesses should respect the interests of and be responsive to all their stakeholders.
Principle 5: Businesses should respect and promote human rights.
Principle 6: Businesses should respect and make efforts to protect and restore the environment.
Principle 7: Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.
Principle 8: Businesses should promote inclusive growth and equitable development.
Principle 9: Businesses should engage with and provide value to their consumers in a responsible manner.
Formats of Reporting
The MCA has introduced the following two BRSR formats for disclosures:
- BRSR Comprehensive: This format is mandatory for obligated entities to use when reporting their ESG performance.
- BRSR Lite: Non-obligated entities without prior sustainability reporting experience are encouraged to adopt this format. BRSR Lite is a simplified version of BRSR Comprehensive with fewer indicators across the nine NGBRC principles.
Both formats consist of three sections:
- General disclosures: Provides basic information about the entity, such as its products, operations, subsidiaries, and workforce size.
- Management and process disclosures: Details the business policies and processes used to integrate the NGBRC principles.
- Principle-wise performance disclosures: Reports the entity’s performance relative to the nine NGBRC principles.
Enhanced Disclosure with BRSR Core
Furthermore, in 2023, SEBI introduced BRSR Core to strengthen the framework and improve ESG disclosures’ reliability. BRSR Core is a subset of BRSR requiring companies to disclose their performance against nine ESG attributes, each with selected key performance indicators. Unlike BRSR, BRSR Core mandates reasonable assurance, ensuring verification by a third-party auditor for accuracy. This enhances the credibility of disclosures and boosts investor confidence.
Timeline for Implementation: Starting FY 2023–24, the top 150 companies by market capitalization must report their sustainability performance using BRSR Core. This requirement will expand gradually to cover 1,000 companies by FY 2026–27. Additionally, from FY 2024–25, the top 250 listed companies must disclose their value chain’s ESG footprint and, from FY 2025–26, obtain third-party audit assurance on a comply-or-explain basis.
Observations on BRSR Submissions for FY 2022-23
The National Stock Exchange of India (NSE), through its Circular Ref. No: NSE/CML/2024/11 dated May 10, 2024, has made the following general observations regarding the filings of Business Responsibility and Sustainability Report (BRSR) submissions for the financial year 2022-23:
- Policy Linkage in BRSR: Some companies provided a generic link to their website instead of direct links to specific policy documents as required in the BRSR format.
- Corrective Action Details: While many companies conducted assessments for the year, they failed to include details of corrective actions taken in the relevant sections of the report.
- Skill Upgradation Training Disclosure: Companies disclosed training information predominantly for permanent employees, neglecting to include data on skill upgradation for non-permanent employees and workers.
- GHG Emissions Reporting in Financial Services: The Financial Services industry claimed that GHG emissions were not materially relevant; however, their emissions were found to be higher than those of the Automobiles industry.
- Water Discharge Data: Few companies in the Consumer Durables and Oil, Gas & Consumable Fuels sectors disclosed water discharge data, whereas a significant number of companies in Consumer Services and other industries failed to make these disclosures.
- Waste Management Reporting: Companies in sectors such as Construction Materials, Cement, Power, and FMCG reported higher amounts of waste recovered or disposed of than the total waste generated, without providing adequate justification for this discrepancy.
- Employee Count Discrepancies: There were inconsistencies between the total number of employees reported in the General Disclosure section and the number reported under training given to employees and workers.
- Training Data Anomalies: Some entities reported having provided skill upgradation training to more workers than their total workforce or showed 100% training completion despite discrepancies in the numbers.
These observations highlight the need for improved accuracy and completeness in BRSR filings to enhance transparency and reliability of the disclosures.
Conclusion
In conclusion, India’s Business Responsibility and Sustainability Reporting (BRSR) framework heralds a new era for corporate transparency and sustainability. By embedding ESG considerations deeply into corporate disclosure practices, the BRSR empowers Indian businesses to align with global sustainability goals and investor expectations. The comprehensive reporting standards and the phased implementation of BRSR Core ensure that companies not only disclose but also substantiate their ESG initiatives with credible data. This transformative approach positions Indian companies to lead in sustainable growth, driving long-term value creation and resilience in an increasingly sustainability-conscious global economy.
