BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORTING (BRSR)

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Context: Business Responsibility and Sustainability Reporting (BRSR) is the current framework for listed companies to disclose Sustainability and ESG practices in annual reports.

Details

• Business Responsibility and Sustainability Reporting (BRSR) is a framework through which listed companies in India report on sustainability and ESG (Environment, Social, and Governance) issues in their annual reports.
• The BRSR has evolved from the earlier Business Responsibility Reporting (BRR), which in turn was based on the National Voluntary Guidelines for Responsible Business Conduct.

ESG (Environment, Social, and Governance) ●  ESG investing, or environmental, social, and governance investing, evaluates companies based on their performance in these areas. ○Environmental criteria assess a company's impact on the environment, while social criteria look at its relationships with employees and communities. ○Governance criteria focus on leadership and shareholder rights. ESG investing helps investors avoid companies engaged in risky or unethical practices. ○Investment firms offer products that follow ESG principles, and robo-advisors are promoting these options to younger investors. ●ESG investors consider a range of factors, including corporate climate policies, energy use, workplace conditions, diversity in leadership, and transparency in accounting methods. Investors may be sacrificing returns in exchange for values when following ESG principles, but many are willing to make that tradeoff. ●Financial services companies like JPMorgan Chase, Wells Fargo, and Goldman Sachs are tracking their ESG performance and publishing reports on their approaches. The ultimate value of ESG investing depends on whether companies are driving real change for the common good.

Business Responsibility and Sustainability Reporting (BRSR)

• The Securities and Exchange Board of India (SEBI) introduced BRSR in 2021 as a framework for sustainability reporting. This framework mandates the top 1000 listed companies by market capitalization to disclose their ESG performance in a standardized format starting from FY 2022-23.

Evolution from BRR

• BRSR evolved from the earlier Business Responsibility Reporting (BRR), which was based on the National Voluntary Guidelines for Responsible Business Conduct (NGBRCs). BRSR includes more comprehensive and standardized indicators compared to BRR.
• SEBI introduced BRSR Core in 2023 to enhance the rigour of ESG disclosures. This subset of BRSR requires disclosures against nine specific ESG attributes, with each attribute including key performance indicators.

Key Challenges and Requirements

Data Intensive Nature

• BRSR requires a large amount of detailed data, necessitating significant upgrades to firms' IT systems to capture and report this information accurately.
• Firms need to continuously update and manage their data collection processes rather than wait until the end of the fiscal year.

 Assurance and Compliance

• From the financial year 2023-24, the top 150 companies must provide reasonable assurance reports for the nine key performance indicators in the BRSR Core.
• This assurance requirement will progressively extend to other companies.
• By FY 2024-25, the top 250 companies must extend BRSR Core to their value chains on a comply-or-explain basis.
• By 2025-26, value chain disclosures will need to be assurance-reported on a limited assurance basis.

 Interoperability Issues

• BRSR is not interoperable across different global standards, requiring multinational companies to tailor their reports to meet both local BRSR requirements and those of their parent firms in other regions like the EU and the US.

 Complex Reporting Requirements

• BRSR includes two sets of indicators: Essential Indicators and Leadership Indicators.
• Reporting on Leadership Indicators is optional but challenging, requiring a high level of preparation.

 Feedback and Implementation Challenges

• There is a general unpreparedness among companies regarding the implementation of BRSR, including:
  • Inadequate IT systems for capturing the required data.
  • A lack of awareness and training on sustainability reporting.
  • A shortage of sustainability-trained personnel.

 Integration with Other Regulations

• Companies need to ensure their IT systems are compliant with the Digital Personal Data Protection Act, 2023 (DPDP).

 Standards and Frameworks

Global Standards

• There were over 600 reporting frameworks in 2015, now consolidated into a few globally accepted standards.
• The IFRS-sponsored ISSB’s standards IFRS S1 and IFRS S2, and IFAC’s assurance standards are gaining acceptance, although they are not yet officially prescribed in India.

 Greenhouse Gas (GHG) Protocols

• GHG emissions are classified into three scopes:
  • Scope 1: Direct emissions from owned or controlled sources.
  • Scope 2: Indirect emissions from the generation of purchased energy.
  • Scope 3: All other indirect emissions in a company’s value chain.
• Scope 3 emissions are the most challenging to measure due to their complexity and the involvement of the entire value chain.
• Financial Sector Involvement:
  • The RBI is pushing banks to consider the environmental impact of their lending, with more rigorous vetting of new sanctions.

 Non-Tariff Trade Barriers and International Compliance

• European Union Regulations: The EU has introduced regulations like the Carbon Border Adjustment Mechanism (CBAM), anti-modern slavery initiatives, and deforestation disclosures. Companies wishing to trade with the EU must comply with these standards, requiring substantial data generation and compliance efforts.
• Monitoring and Management: These challenges necessitate constant monitoring and management by businesses to mitigate risks and ensure compliance.

 Conclusion

• The implementation of BRSR presents numerous challenges for businesses, from data collection and IT system upgrades to compliance with global standards and addressing non-tariff trade barriers. Companies need to adopt a proactive and continuous approach to sustainability reporting to meet these demands effectively. BRSR is only the starting point, and ongoing efforts are required to navigate the evolving landscape of sustainability and ESG reporting.

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ESG REGULATIONS

 Source:

The Hindu

Investopedia

Center for Energy Finance

PRACTICE QUESTION Q. Critically assess the impact of environmental regulations on industrial competitiveness. How can governments design policies that both protect the environment and foster industrial innovation and growth? Provide case studies to support your argument.