Business Responsibility & Sustainability Reporting (BRSR) - Should Companies implement it even though it is not mandatory!

Preamble

BRSR is the evolution of Environmental, Social and Governance (ESG) reporting in India. In 2012, the Business Responsibility Report (BRR) was introduced for the first time. BRSR is the refined version of BRR. BRSR is the framework for ESG reporting and came into effect from 2023. SEBI vide circular no. SEBI/HO/CFD/CMD-2/P/CIR/2021/562 dated May 2021 introduced a format which has replaced the existing BRR. This Report (BRSR) is mandatory for the top 1000 companies from FY. 2022-2023 and was voluntary for 2021-2022. The top 1000 companies are considered based on market capitalization. The format is further updated by SEBI in July 2023. Sustainable Reporting Standard Board of ICAI developed the scoring mechanism of BRSR by assigning scores to BRSR.

Importance of BRSR

It is a very important part of integrated reporting which combines both financial and non-financial parameters including companies' commercial, ecological and social impact which may be caused by routine business operations.

UN Sustainable Development Goals (SDGs) and Reporting

In September 2015, the UN General Assembly adopted 17 sustainable goals for 2030 comprising targets and indicators as well as follow-up and review mechanisms.

Major sustainability Reporting instruments used in different countries are :

1. International Federation of Accounting (IFAC)
2. Global Reporting Initiative (GRI)
3. The Organization for Economic Cooperation and Development (OECD)
4. International Organization for Standardization (ISO26000)

There are three main disclosure areas under BRSR

1. General, Basic Company Information
2. Management and Process
3. Principle-wise disclosures mainly focused on quantitative data relating to 9 basic principles of National Guidelines on Responsible Business Conduct (NGRBC).

Principles of National Guidelines on Responsible Business Conduct (NGRBC)

1. Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable.
2. Safety and Sustainability of Goods & Services
3. Employee well-being
4. Business should respect the interests of and be responsible for all its stakeholders
5. Businesses should respect and promote human rights
6. Protection and restoration of the environment
7. Influence on public and regulatory policy & responsibility advocacy
8. Business should promote inclusive growth and equitable development
9. Businesses should engage with and provide value to their customers in a responsible manner

Let us look at three main disclosure areas under BRSR in detail.

1. General and Basic Information of Company

1. It should be noted that the details shall be in line those given in Form MGT-7 prescribed by MCA
2. Products Sold / services offered by the entity : The entity shall disclose the top products manufactured or services provided by the listed entity that account for 90% of its turnover (in descending order) along with the individual contribution of such products/services to the total turnover.
3. Details of Employees and workers: The entity shall disclose the total number of employees and workers, along with the associated break-up by gender (male/female) and into permanent/other than permanent.
4. Participation / inclusion representation of women (including differently abled).
5. Turnover rate for permanent employees and workers.
6. Holding/subsidiary / associate companies / joint ventures
7. Grievance redressal mechanism for stakeholders
8. Overview of the entity's material responsibility: Sustainability as per National Guidelines on Responsible Business Conduct is defined as the outcome achieved by balancing the social, environmental and economic impacts of business. It is the process that ensures that business goals are pursued without compromising any of the three elements.

2. Management and Process Disclosures

This part targets helping businesses demonstrate the structures, policies and processes put in place towards adopting NGRBC Principles and core elements.

1. Policies covering all the principles and its core elements of NGRBC and duly approved by Board;
2. Policy to be translated into Procedures and whether it is enlisted to value chain partners;
3. Name of the National /International codes/ certifications/labels/standards adopted by the entity;
4. Specific Commitment set by entities with target and performance against the same.

As per the Guidance Note, under this field, the entity may disclose if it has any specific commitment, goal or target against any of the principles. Such disclosures may include the following:

• Baseline and context for goals and targets ;
• Entities covered such as subsidiaries/associates / joint ventures/value chain partners ;
• Expected result or outcome, in quantitative or qualitative terms ;
• Expected timeline for achieving each goal and target;
• Whether goals and targets are mandatory (based on legislation) or voluntary. If they are mandatory, the organization should list the relevant legislation.
• The entity shall state the performance achieved against each goal or target. Any change in goals with regard to timelines, partial achievement of a goal or delay in achievement should also be specifically indicated, and where possible, with reasons.
• The entity need not strictly follow the tabular format for this disclosure. The issues for each principle can be covered in a running format.

5. Statement by the director responsible for the report for to highlight ESG issues
6. Highest authority responsible for implementation and oversight of the Business Responsibility policy (ies) and to inform whether the entity have a specified committee of the Board/ Director responsible for decisions on sustainability-related issues.

3. Principle wise Performance disclosures:

This section is very critical as it helps entities demonstrate their performance in integrating the Principles and Core Elements with Processes and decisions taken.

The information asked is categorized as "Essential" and Leadership"

Essential Indicators are expected to be disclosed by every entity that is mandated to report. Leadership Indicators are voluntary.

1. Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable.
2. Safety and Sustainability of Goods & Services
3. Employee well-being
4. Business should respect the interests of and be responsible for all its stakeholders
5. Businesses should respect and promote human rights
6. Protection and restoration of the environment
7. Influence on public and regulatory policy & responsibility advocacy
8. Business should promote inclusive growth and equitable development
9. Businesses should engage with and provide value to their customers in a responsible manner

A detailed explanation is given in Guidance note issued by SEBI in "Guidance note for business responsibility & sustainability reporting format" for the above Nine Principles.

BRSR Lite

It is developed for unlisted companies unfamiliar with the preparation of sustainability reporting. The format will encourage more companies to begin sustainability reporting as it is easier to understand and adopt for unlisted companies. The adoption of BRSR Lite would be voluntary for such companies.

Conclusion

Although it is a very good initiative for BRSR as well as BRSR Lite for unlisted companies which is still voluntary, there are practical challenges to adopt and implement in an organization which is medium to large companies. Some of them are like Cost of implementation, Lack of data, scattered data, Lack of data analytics tools within the company, Goal measurement tools etc. Still going forward, the way the format is designed is giving exhausted ideas above the General, Managerial, Processes in the organization in a particular format and gathered in one place. This is no doubt will help stakeholders to understand the activities in an entity as well as investment decisions to be taken.

Disclaimer: Although the due care is taken, it is prepared for general knowledge purpose and not for specific use. The readers, are advised to take proper note of the same and advised to take specific advise before acting on the same. One should not act upon the information contained in this article without obtaining expert's and professional advise. Further no representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this article.

Bibliography: SEBI Website, ICAI Website, inspired by BRSR related topics in Books by various authors and guidelines issued by SEBI