By Inderjeet Singh
BRSR guidelines: Non-financial disclosure requirements have leapfrogged globally in the last decade, holding companies accountable for identifying environment, social, and governance (ESG) responsibilities and their transparent incorporation in annual disclosures. The concept of materiality has helped businesses identify material products and/or services with bearings on their long-term sustainable growth in a globally competitive business environment.
In line with these global developments, the Securities and Exchange Board of India (Sebi) introduced new sustainability reporting format for listed companies to enhance disclosures on ESG standards. The new format, named Business Responsibility and Sustainability Report (BRSR), looks to establish links between a business’ financial results and its ESG performance. This can make it easier for regulators and investors, and allied stakeholders to obtain a fair estimate of overall business stability, growth, and sustainability (hitherto based on financial disclosures alone).
SEBI notified mandatory compliance to BRSR by top 1,000 listed companies from the next financial year. It is equally interesting to note that companies qualifying for mandatory BRSR requirements will have to continue to report even if they happen to drop below the eligibility threshold in a particular year.
BRSR disclosures to be made uniform
Although listed companies with access to stock markets have priority, the long-term target is to make BRSR disclosures uniform across all market players. Moreover, BRSR Lite introduces the concept of non-financial disclosures among unlisted companies. It continues to be on the same philosophy of National Guidelines of Responsible Business Conduct (NGRBC).
BRSR Lite is compiled in a relatively lucid and simpler form, allowing businesses to attempt response on the basis of limited domain understanding. Both BRSR Comprehensive and Lite continue to offer cross-referencing of disclosures with standards/principles such as GRI, TCFD, and SASB.
The paradigm shift that begins with BRSR introduces the principles of materiality and quantitative disclosures that were out of purview in the erstwhile Business Responsibility Reporting (BRR). To make it holistic, a regimented approach towards disclosures has been proposed across almost every NGRBC principle. To begin with, companies are expected to select their products and/or services that are material to their turnover and profitability, thereby taking the whole narrative away from generic disclosure.
If we look at NGRBC expectations, under principle 2, the percentage of material sources from SMEs, local market, and recycled extended producer responsibility (EPR) compliance, along with R&D and capital investment in specific technologies , are now required to be reported. Businesses are expected to help their policies cascade deeper into the value chain by assessing labour wellbeing, prevention of sexual harassment (POSH), and health, safety, and environment (HSE) practices, and respond against disclosures under NGRBC principle 3.
Towards transparency in corporate reporting
BRSR further mandates CSR disclosures to be granular with information on marginal and vulnerable beneficiaries. Capacity building and sensitisation of end customers towards responsible use and safe disposal of products have been covered under principle 9 of NGRBC. Thus, businesses are required to take a deeper look into their policies, product/service alignment, and responsibility towards society and environment. They need to put in place an appropriate governance mechanism for the complete product lifecycle, not just for limit disclosures from gate-to-gate.
When disclosures will be accessible as a public document, companies will be aware about the material aspects to their businesses − right from products and services, recall policies, patents, specific energy consumption, environmental footprint, impact on society, litigation, and penalties imposed on them. This will nudge companies into taking appropriate actions to carry out business responsibly. For the companies that have never looked at these evolving requirements, BRSR will create a push.
For the companies that have been reporting through other channels (such as GRI and IIRC), BRSR will help them build eminence quickly by responding to leadership indicators. The Institute of Chartered Accountants of India (ICAI) has instituted a structure for ranking companies’ BRSR performance by introducing the Sustainability Reporting Maturity Model (SRMM), wherein reporting businesses can do a self-assessment to get an understanding of their position vis a vis various sustainability reporting maturity levels.
To conclude, stakeholders (including investors, regulators, and consumers) are expected to benefit from a stable, disciplined, and regimented disclosure of non-financial performance by companies. Moreover, the country can lead by example by giving non-finance performance its due importance and maintaining a sustainable outlook towards society, environment, and governance.
(Dr Inderjeet Singh is Director – Financial Advisory, Deloitte India. Views are personal.)