In order to keep pace with the global momentum in ESG disclosures, there is gradual yet pragmatic push by Government of India for adoption of responsible and sustainable business practices. The disclosure boundary on sustainable performance by corporates is thus steadily growing. The erstwhile BRR gradually culminated into BRSR to incorporate the current global practices in non-financial sustainability reporting based on the NGRBCs.

Introduction

SEBI had mandated top 1,000 listed entities (by market capitalisation) to file BRSR (“extant BRSR”) as part of the Annual Report with SEBI from FY 2022-23 onwards. In February 2023, SEBI issued a consultation paper to widen the periphery of ESG disclosures and proposed phased manner of applicability of BRSR Core, value chain disclosure and assurance thereof.

SEBI through a notification dated 14 June 2023 amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) to introduce the BRSR Core and BRSR Core for a company’s value chain. Subsequently, on 12 July 2023, SEBI issued the framework (“the framework”) prescribing the disclosure and assurance requirements for BRSR Core, ESG disclosures for value chain, and assurance requirements.

In the sections below, we intend to give our synopsis on the framework as issued by SEBI vide Circular no. SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122 dated 12 July 2023).

The framework enumerates disclosure requirements and assurance applicability in a glide path and can be divided into THREE categories:

• BRSR Core (sub-set of extant BRSR)
• Updated BRSR (extant BRSR + BRSR Core)
• BRSR Core for Value Chain (Cumulatively comprising 75% of its purchases / sales (by value) by the top upstream and downstream value chain partners of a listed entity)

* Reporting may be segregated for upstream and downstream partners or can be reported on an aggregate basis
* Scope of reporting and any assumptions or estimates, if any, should be clearly disclosed

Nine Attributes of BRSR Core

Changes in the extant BRSR to incorporate BRSR Core KPIs

* New Insertion in Essential Indicator (N)
* Transposition from Leadership to Essential Indicator (T)

Criteria when selecting BRSR Core Assurance provider

Expertise: The listed entity’s Board should confirm that the chosen assurance provider for the BRSR Core possesses the necessary competence to execute reasonable assurance.

No Conflict of Interest: The listed entity needs to ascertain that there’s no conflict of interest with the selected assurance provider in charge of assuring the BRSR Core disclosures.

For example, the entity must ensure that neither the assurance provider nor any of its affiliates market their products or offer non-audit/non-assurance services, such as consulting, to the listed entity or its group companies.

Conclusion

An important feature of the circular is its focus on inclusion of value chain disclosures. Though this will contribute to a comprehensive assessment of a company’s environmental, social, and governance impact, this approach significantly increases the burden of compliance, as integrating sustainability policies within the supply chain becomes a complex and laborious task. The responsibility for reporting still lies with the listed entity. However, the circular encourages value chain partners to align with the company’s sustainability policies, as they risk losing business from the listed entities if they don’t comply.

Why Choose InCorp?

InCorp Advisory provides a complete ecosystem and support for your BRSR needs. Our team of experts conducts a 360-degree assessment to identify and highlight potential risks and opportunities which can arise with BRSR reporting. Our clients range from listed companies to investors as we help them not only improve their ESG reports but also help create valuable investments.

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Environmental Social Governance (ESG) reporting is gaining momentum in India, with the Securities and Exchange Board of India (SEBI) making it mandatory for the top listed entities to report their Business Responsibility and Sustainability Report (BRSR) as part of their listing disclosure requirements. In addition, SEBI has also imposed regulations for ESG-labelled Mutual Funds, requiring them to invest predominantly in companies that publish BRSR reports. Recently, SEBI updated the regulatory guidelines for issuers of green bonds mandating them to adopt the abridged version of the BRSR report. SEBI is also currently working on a regulatory framework for ESG Rating Providers (ERPs).

As India’s top 1000 companies are gearing to adopt and publish the first set of mandatory BRSR reports, SEBI on 20th February 2023 released its ESG Committee’s recommendations on streamlining the ESG disclosures, ESG Ratings, and ESG Investments in India.

The recommendations put a strong emphasis on improving the quality of BRSR disclosures such that stakeholders can have a stronger reliance on the information disclosed. The top 6 highlights of the recommendations of SEBI’s ESG Committee which increase the scope, utilitarian value, and quality of BRSR are as follows:

A: BRSR Core Assurance:

The simplest way to build reliance on BRSR disclosures is by a third-party assurance. BRSR currently covers a wide range of disclosures, hence, to limit the cost of compliance the committee has proposed rolling out assurance in a phased manner. The said assurance is only applicable to the most critical disclosures of BRSR, named as BRSR Core by the consultation paper. BRSR Core covers the assurance of GHG footprint, water consumption and discharge, R&D and capex expenditure in reducing environmental footprint, addressing waste disposal, employee wellbeing, and safety, gender diversity, POSH complaints, purchases from MSME and small producers, job creation in tier-3 towns, percentage of negative media sentiment and average days of payment to vendors and openness of business.

B: Upgrade to BRSR Comprehensive Framework:

Many KPIs suggested in the BRSR core are currently not in BRSR comprehensive framework. Hence the committee has proposed to amend BRSR comprehensive framework and include additional KPIs. Reasonable assurance is required from an assurance provider for such KPIs mentioned under the BRSR core option.

C: Essential Supply Chain Disclosures:

For the current financial year, the BRSR disclosure requirements buckets supply chain indicators under leadership indicators. However, for certain companies, significant GHG emissions may be captured in the supply chain and hence it becomes essential for them to report the same. Keeping the complexity of getting the relevant data for the companies in the initial year, the ESG committee recommends making it an essential indicator in the coming years under the BRSR disclosure requirements. The disclosure shall be on a “comply-basis and will be rolled out in a phased manner.

D: Indianized ESG Ratings Scores:

Apart from working on regulations framework on how ESG Rating Providers (ERPs) shall operate, the ESG committee also believes that emerging markets like India present a unique set of environmental and social challenges and therefore there is a need for a distinct set of metrics to be considered when assigning ESG ratings. In the context of India, for instance, issues such as employment creation in smaller towns, gender diversity at the employee level, and inclusive development are much more pertinent than in developed markets. Hence the committee has identified relevant 15 ESG parameters that have an Indian context.

E: ESG Core Rating based on BRSR:

SEBI Committee believes that in general ESG ratings are based on self-disclosed data. The Committee has already proposed that the BRSR core indicator shall be subject to assurance. The Committee further proposes that in addition to their general ESG ratings, ERPs shall also provide a Core ESG rating, which shall be based on assured BRSR Core parameters.

F: Mitigation of investment risks:

To mitigate the risk of greenwashing and safeguard investors SEBI committee has proposed an ESG scheme to invest at least 65% of its AUM in companies that are reporting the BRSR comprehensive version and also providing assurance on BRSR Core disclosures. The same shall come into effect on Oct 01, 2024. Additionally, third-party assurance for the ESG funds regarding compliance shall be introduced from April 01, 2023, on a ”comply-or-explain” basis.

Conclusion

Adoption of BRSR reporting is not just run-of-the-mill compliance but has a larger impact and a much wider audience. SEBI’s ESG committee with this consultation paper has redrawn the attention of listed companies who shall be releasing their first BRSR report for FY 22-23.

Why Choose InCorp?

InCorp Advisory provides a complete ecosystem and support for your BRSR needs. Our team of experts conducts a 360-degree assessment to identify and highlight potential risks and opportunities which can arise with BRSR reporting. Our clients range from listed companies to investors as we help them not only improve their ESG reports but also help create valuable investments.

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