Move towards standardization of sustainability reporting

Forrest Gump made a fortune with his investment in Apple, thinking that it was ‘some kind of fruit company’. Gump was blessed to be in the right place at the right time, and he didn’t bother about the right information needed for investment decision-making. The last decade has seen an explosion of information available for investment decision-making, including the non-financial kind primarily constituting environment, social and governance (ESG) parameters. With investors increasingly seeking non-financial information to channel their funds, the quality of such information available has also steadily improved.

Non-financial reports in the public domain in India primarily consist of the mandatory Business Responsibility Reports (BRR) filed by the top 1000 listed companies and sustainability reports of many companies published voluntarily. The committee of business responsibility reporting set up the Ministry of Corporate Affairs (MCA) in 2018 reviewed the existing reporting frameworks including the BRR and found certain shortcomings in accuracy and clarity of information provided, lack of sufficient quantitative information and weak disclosures on areas such as value chain and labour. The market regulator Securities and Exchange Board of India (SEBI) was also part the committee.

The committee has recommended expanding the existing BRR framework to Business Responsibility and Sustainability (BRSR) framework in line with the global trends in non-financial reporting. 

Financial reporting is quantifiable and fairly standardized, that in turn can lead to straightforward comparisons for decision-making. On the other hand, simplistic comparison of non-financial parameters is akin to comparing apples with oranges. For e.g., solid waste management is important in an IT services company, but not as much as in a pharmaceutical company that has to comply with multiple regulations on the same. The associated financial and reputational risks associated with non-compliance in the two cases are also different. Herein lies the challenge of also statutorily mandating the disclosure of non-financial information.

Global sustainability reporting frameworks such as GRI, IIRC & SASB have been adopted with significant variations across geographies. Many countries such as France have evolved their own non-financial reporting guidelines. As GRI and IIRC standards are voluntary, the adoption by Indian companies so far is not very significant.

The BRSR is a major step towards helping investors make better choices regarding Indian companies, in line with global sustainability trends. The decade-long evolution of non-financial reporting started in 2009 with MCA issuing the ‘Voluntary Guidelines on Corporate Social Responsibility’ as a step towards mainstreaming the concept of business responsibility. Key developments in India over the years include:

  • 2011: MCA publishes National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs)
  • 2012: SEBI introduces BRR based on the NVGs, and mandates BRR reporting for top 100 companies by market cap
  • 2016: SEBI extends BRR reporting mandate to top 500 companies by market cap
  • 2019: MCA revises NVGs to formulate the National Guidelines for Responsible Business Conduct (NGRBC)
  • 2019: SEBI extends BRR reporting mandate to top 1000 companies by market cap
  • 2020: Committee on Business Responsibility Report proposes to MCA a new BRSR framework aligned with NGRBC

Sustainability reporting has mainly been driven by non-state organisations such as GRI, IIRC, etc. The BRSR has been formulated by integrating the existing BRR framework with the NRGBC, and overlaying the Sustainable Development Goals (SDGs) and the United Nations Guiding Principles on Business & Human Rights (UNGPs). By proposing to move BRSR to the statutory domain, the government has signaled its expectations from businesses on sustainability disclosures. Over time, the proposed formats are intended to become a single source of non-financial/sustainability information for companies reporting in India.

Key features of the BRSR are as follows:

  1. Envisaged as comprehensive source of non-financial, sustainability information relevant to all business stakeholders – investors, shareholders, regulators, and public at large
  2. Structured across three sections of (1) General business disclosures (2) information on policies and processes relating to the NGRBC principles concerning leadership, governance, and stakeholder engagement and (3) Performance against the NRGBC principles
  3. Allows businesses to discuss materials aspects in a qualitative manner
  4. Two versions– comprehensive and lite, to smoothen adoption 
  5. Integrated electronic filing with MCA database

The BRSR has now been put up by SEBI in the public domain for consultations. It is expected that the top 1000 listed companies may have to comply with the BRSR from FY 2021-22. Non-listed companies are also expected to brought in the BRSR ambit over a period of time.

BRSR adoption would go a long way to help stakeholders back businesses that value environment, social and governance principles, not just in letter but also in spirit. It is appropriate to end with a statement from the report on the committee that recommended the BRSR to the MCA, ‘business leaders have been compelled, and have also found it to be in their interest, to reimagine the role of businesses in the society and not view them merely as economic units for generating wealth.’ 

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