BRSR - SEBI Framework of Sustainability Reporting

BRSR - SEBI Framework of Sustainability Reporting

Since the evolution of the era of industrialization, humans are at the forefront in exploiting the nature. The consequences of the actions of the past can easily be felt in the present and have led people to think and take action on saving the already degraded environment from future exploitation. Living up to one’s commitments to sustainability and combating climate change is an urgent necessity for businesses and individuals alike. Recently, in May 2023, G7 leaders at a summit in Hiroshima, Japan, reiterated their commitment to the Paris Agreement’s goal of limiting global temperature rise to 1.5°C. The International Sustainability Board has published first two standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, in June 2023.

Globally, disclosure regulations have advanced, holding businesses accountable for recognizing their environmental, social, and governance (ESG) obligations. In response to these international changes, the Securities and Exchange Board of India (SEBI) has announced guidelines for the top 1,000 listed entities (by market capitalization) to disclose their sustainability performance data and information from FY 2022-23 in Business Responsibility and Sustainability Report (BRSR) as part of its efforts to integrate sustainability considerations while making business decisions and sharing the same with their stakeholders. The goal of the new reporting format is to create connections between an organisation’s financial performance and its sustainability performance. These disclosures are based on the principles covered in the National Guidelines on Responsible Business Conduct (NGRBC) issued by the Ministry of Corporate Affairs in 2019 which itself emanates from the UN Sustainable Development Goals. SEBI has also issued a 1circular prescribing a format for BRSR disclosures and a Guidance Note on key aspects of BRSR.

Overview of BRSR disclosures

The BRSR disclosures are segregated into the following three different sections:

1. Section A: General Disclosures
Information relating to the listed entity like products/ services offered, operations, markets served by the entity, CSR details, etc. needs to be disclosed.

2. Section B: Management and Process Disclosures
This section is aimed at helping businesses demonstrate the structures, policies and processes put in place towards adopting the NGRBC Principles and Core Elements.

3. Section C: Principle-Wise Performance Disclosures
This section is aimed at helping entities demonstrate their performance in integrating the Principles and Core Elements with key processes and decisions.

There are nine principles under which an entity needs to provide ‘Essential’ and ‘Leadership’ disclosures. Essential indicators need to be provided mandatorily and Leadership indicators are voluntary in nature.

We have analysed top 20 listed entities on National Stock Exchange (NSE) (by market capitalization as on 31 March 2023) which voluntarily presented the information relating to BRSR in FY 2021-22 to understand the emerging practices in disclosing the information under BRSR.

1. Reporting under BRSR

2. Reporting boundary

Entities are required to specifically state the reporting boundary in BRSR – i.e. whether the company has provided the disclosures on a standalone basis or a consolidated basis.

3. Essential indicators and Leadership indicators

With respect to disclosures pertaining to section C wherein the companies need to provide principle-wise disclosures, all 14 companies have disclosed both essential as well as leadership indicators. The table highlights the proportion of companies that have disclosed all essential and leadership indicators:

4. Assurance of selected non-financial disclosures in BRSR

Assurance of BRSR was not mandatory till 2023. 13 Companies out of 14 (i.e. 93%), have specifically disclosed that the sustainability report or integrated report has been subject to assurance in accordance with International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information (issued by International Auditing and Assurance Standards Board (IAASB)) / AA1000 Assurance Standard v3 issued by Accountability Standards Board. Some of the non-financial disclosures/ metrics disclosed in the BRSR also form part of such integrated reports. The table below highlights the number of companies whose sustainability report/ integrated report has been assured at a reasonable level or at limited level:

It is to be noted that only 9 companies have included the assurance statement issued by an independent third party in their annual report.

Companies may consider the following while implementing the BRSR:

1. Reporting boundary – whether at standalone level or consolidated level?

The SEBI circular which mandated the disclosures in BRSR also provides a Guidance Note detailing out the guidance with respect to disclosure under BRSR. The guidance note gives an option to entities to either present the information in BRSR at the standalone entity level or at the consolidated level (i.e. for the standalone entity and for all the entities which form a part of its consolidated financial statements, taken together.) Companies disclosing information on a hybrid basis – some information on a standalone and some on a consolidated basis – may be questionable and draw unwanted attention from stakeholders. Such an approach would lead to incongruence and non-comparability of disclosures by the companies.

2. Lack of sectoral guidance on BRSR

The uniformity of questions across all sectors has been challenging for companies. The Companies believed that a detailed sectoral guidance would have been more relevant to reflect sustainability matters that are specific to each sector.

3. Adequacy of internal controls

BRSR disclosures would require companies to establish a comprehensive data management system as these disclosures can involve information which does not form part of financial reporting and relate to operational data. Adequate internal controls over the processes, systems and information produced by the company for disclosures in the BRSR would require a significant investment of resources. Unless robust controls are established the underlying data might be susceptible to errors. Lack of adequate skill set/ persons having sufficient knowledge could further accentuate issues with respect to sufficiency, adequacy, reliability, appropriateness, and correctness of the information. Unreliable and inaccurate information results in higher chances of unintentional errors and intentional ‘green washing’ incidents considering reasonable assurance are mandatory for top 150 listed companies (by market cap) from FY 2023-24.

4. Silo approach

BRSR disclosures encompass financial reporting (for example, financial information pertaining to CSR, products/ services (accounting for 90% of entity’s turnover), contribution of exports, etc.) and include other matters as well – thereby requiring collaboration within departments to populate the information. Departments such as Finance, HR, IT, etc would need to feed relevant information to the team primarily responsible for the BRSR disclosures. Departments working in silos would need to closely collaborate and work towards achieving a common objective.

5. Lack of clarity on certain aspects in the guidance note

It is to be noted that the guidance has been given for some selected disclosure pointers only. Lack of guidance/clarity may lead to misinterpretations of the real ask and, hence misreporting. This could become one of the reasons for non-comparability of BRSR disclosures disclosed by different companies in the same sector. For example, the one pertaining to accessibility of premises/ offices to differently- abled employees and workers as per the requirements of the Rights to Persons with Disabilities Act, 2016. These are very subjective disclosures as even an elevator in the premises could be disclosed as serving the purpose.

Mitigating measures

For effective and efficient implementation of the disclosure requirements under BRSR, companies need to adequately address the issues and challenges they may face, some of which are mentioned above. Some steps which the management can adopt to suffice the purpose are listed below:

Allocating responsibility

Formation of Board level ESG Committee and core team with representations from various verticals of the entity to ensure compliance with BRSR.

Data coordination

Implementing an adequate system of coordination between different functional departments to curb data management issues. One way could be digitizing the relevant information which could be accessed by the relevant people from anywhere.

Developing detailed SOPs and KPIs

Management needs to prepare detailed SOPs and KPIs in relation to the non-financial disclosures being asked under BRSR to ensure consistency with the financial information presented in the annual report.

Consider sector specific guides basic aspects

To help the listed entities in understanding the disclosure requirements and concepts associated with BRSR, National Stock Exchange of India, in association with Stakeholder Empowerment Services, has conceptualised 38 sector specific integrated guides to the BRSR format. These comprehensive guides provide detailed explanation of each parameter in the format and the objective for such disclosures, along with an elaborate guidance on how to measure and report such parameters. To access these Guides – click here. These Guides provide guidance on certain basic aspects of reporting. However, a detailed guidance on various sectoral aspect would be necessary for effective implementation.

Assess risk and implement adequate internal controls

It is indispensable for the companies, to assess and analyze the underlying risks and appropriately design and implement sufficient and adequate internal controls over the processes, systems and information produced by them to ensure reliable, complete and accurate data. For example, controls to ensure uniformity of disclosures between financial statements and BRSR, controls to ensure that information produced by the entity is complete and accurate, etc. Periodic internal audits to ensure that adequate internal controls are being designed and implemented can add to information credibility.

6. Independent assurance

Independent assurance on the BRSR information would certainly enhance the reliability of BRSR information. It might also be noted that SEBI in its Board Meeting dated 29 March 2023 has decided to mandate reasonable assurance of BRSR Core (a limited set of sustainability related disclosures) for top 150 listed entities (by market capitalization) starting from FY 2023-24. /p>

The mandate to provide reasonable assurance will be extended to top 1000 listed entities by FY 2026-27. Further, SEBI has also decided to introduce ESG disclosures and assurance (BRSR Core only) for the value chain of listed entities, with certain thresholds that shall be specified.

In light of the above SEBI has amended the provisions of the Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 where it mandates the assurance of BRSR Core of the listed entities and their value chain.

The manner of disclosures, inclusions in the value chain and clarity on assurance provider would be further notified by SEBI through separate circular(s). The amendment also highlights the voluntary compliance by other listed entities including entities listed on SME Exchange. Taking these amendments into consideration, companies should focus on the readiness for independent assurance. The first step towards a reasonable assurance is to have adequate internal controls over the relevant processes and systems to ensure reliable information is provided to the assurance provider. The ICAI has also issued Standard on Sustainability Assurance Engagements (‘SSAE’) 3000 “Assurance Engagements on Sustainability Information” The effective date of application of SSAE 3000 on voluntary basis for assurance reports covering periods ending on 31 March 2023 and on mandatory basis for assurance reports covering periods ending on or after 31 March 2024.