With stakeholders increasingly demanding transparency and accountability, effective reporting on sustainability practices, especially Scope 3 Emissions, is taking centerstage. Over the last few years, more and more entities have started preparing and disclosing their sustainability reports either under a mandate or voluntarily as per the reporting frameworks/standards provided by standard-setting bodies/ regulators. With regulatory and reporting frameworks widening and sustainability issues becoming broad based, pervasive and assuming criticality in strategic managerial decision making, ESG Reporting is bound to assume a pivotal role in decision making for all stakeholders. This Cover Story explores emerging trends and best practices in sustainability reporting landscape, including the use of technology for accurate data collection and analysis. Expert interviews followed by this compiled story offer nuanced insights into the importance of transparent reporting in building trust with stakeholders and driving continuous improvement in sustainability performance.
As India commits to achieve its net Zero Vision by 2070, the business sector is being viewed as a critical enabler in furthering this ambition. To support this eco-conscious growth, the government and the regulators have introduced new regulations pertaining to ESG for businesses. In this context, Sustainability Reporting is an emerging discipline encompassing the disclosure and communication of an entity's non-financial – Environmental, Social, and Governance (ESG) performance and its overall impact.
Sustainability reporting has evolved as a crucial practice for businesses to disclose their ESG impacts. Initially driven by environmental concerns raised during the industrial revolution, the concept of sustainable development gained global traction with reports like the Brundtland Report. Over the years, frameworks such as Business Responsibility and Sustainability Report (BRSR) have emerged, guiding companies to align their operations with sustainability goals.
According to a PwC report, evolving sustainability reporting requirements reflect an increasing shift towards embracing environmental and social responsibility. As stakeholders’ expectations are undergoing a transformative change, governments and regulatory bodies are working diligently to address critical sustainability issues by directing organizations to disclose their sustainability efforts and impacts.
These directives push businesses to communicate their environmental practices, social initiatives and governance structures transparently. This drives greater accountability and encourages the integration of sustainability into core business strategies. The evolving reporting landscape not only lays emphasis on reporting of the overall impact of an entity but also attempts to enhance stakeholders’ trust by accentuating the need to verify reporting.
The introduction of regulations like the BRSR by SEBI which mandates the top 1,000 listed companies to disclose their performance with respect to various E, S, and G parameters highlights the growing importance of corporate sustainability in India’s growth story. In fact, India has emerged as one of the frontrunners globally in transitioning to a credible sustainability reporting landscape through the introduction of the BRSR Core.
What ails the existing reporting guidelines?
As mentioned above, Indian companies, nudged by the SEBI, have started reporting on their environmental and sustainability performance, but their submissions lack details and relevant information – finds a survey and assessment done by Centre for Science and Environment (CSE).
In May 2021, SEBI, in a welcome move, launched an initiative called ‘Business Responsibility and Sustainability Reporting (BRSR)’. Under it, the Board wanted the top 1,000 listed companies in India – identified based on their worth in the stock market – to disclose their non-financial data from 2021 to 2023, including data on “environmental stewardship”. SEBI’s BRSR framework asks for this data for two financial years: the current and the previous.
CSE has reviewed 28 reports submitted by 14 of these top companies. Its assessment, titled ‘Strengthening Environmental Reporting under BRSR (Business Responsibility and Sustainability Reporting)’, is largely focused on data provided by the companies pertaining to their actions and records on environmental stewardship.
Nivit Yadav, Programme Director – Industrial Pollution, CSE, stated, “We have reviewed the reports for two consecutive years – 2021-22 and 2022-23 – and also analyzed the data for three consecutive years: 2020-21 to 2022-23. The primary aim behind our assessment has been to find out how the format can be strengthened to get quality data out in the public domain, which can then be used by policymakers and investors for more informed decision-making.”
Shobhit Srivastava, Deputy Programme Manager – Industrial Pollution, CSE, added, “The criteria for selection of the 14 companies was to have as much diversity as possible in terms of the sector. The selection is random as well, and is based on the availability of reports.”
The problem lies in the way the BRSR format and questionnaire has been designed, and the kind of questions that have been asked of the companies – it leaves room for submission of information, which is incomplete, thus defeating the purpose behind the entire exercise: that of creating a reporting structure for Indian companies that would help investors make rational decisions.
Consolidated company data vs unit-specific data: “Consolidated company data is not always useful,” highlighted Srivastava. An average value which takes into account both good and bad units cannot represent the sustainability of a company, says the CSE assessment. Instead, sustainability can be judged effectively if poor or average performing units are identified and a roadmap is prepared for them to improve their performance on various indicators.
Data without the rationale behind it: The current BRSR format makes it difficult to understand the reasons behind the increase or decrease in values and numbers of the parameters.
Companies tweaking the questionnaire: Companies have often provided data selectively, as per their understanding, and added or deleted rows of information as per their convenience. It should not be left to them to decide how they wish to present the data.
Some important indicators categorized as ‘voluntary’, not ‘mandatory’: Some key indicators such as water withdrawal, consumption and discharge have been placed under ‘Leadership Indicators’, where companies can share information voluntarily. These can be moved to the ‘Essential Indicators’ category, which lists mandatory data points that need to be provided mandatorily.
Yadav highlighted, “The BRSR questionnaire has some problems. For example, the format does not seek information on the type of fuels used by a company, or the sources of renewable and non-renewable energy, or how is the undischarged treated water being used. In the case of hazardous and non-hazardous wastes generated by a company, information on waste-wise management and disposal is critical – but the questionnaire does not ask for it.”
The Recommendations
Opt for a sector-specific approach: The existing disclosure format conceived by SEBI is generic in nature and does not contain sector-specific guidelines. CSE’s assessment indicates that a sector-specific approach – similar to ones followed by international frameworks -- might be more useful for analysis and comparison while reporting. Since BRSR is aimed at helping investors finance environmentally responsible companies, a sector-specific format would help them gain an easy, holistic and comprehensive understanding when they prepare to invest in a specific sector.
Update the BRSR guidance document: The BRSR questionnaire and format were reviewed in July 2023, but the guidance document has not been updated alongside. There are certain parameters in which the document has not given sufficient clarifications on the information to be provided. A case in point is that of questions that have been asked on air emissions– the guidance document does not offer any directions on how companies should report the data in the format provided.
Include table formats (as suggested by CSE) to enable data capture: Companies have often provided data as per their understanding and added or deleted rows as per their convenience. It should not be left to companies to decide how they wish to present the data. A proper format with specific tables will help in extracting the required information. For this purpose, SEBI can publish the BRSR questionnaire as a protected spreadsheet with the provision of including the responses from industries, but with no option of editing the format.
Non-hazardous and hazardous wastes should be accounted for separately: Though SEBI has asked for data on generation of different types of waste, when it comes to management and disposal mechanisms, the only information that has been asked for is whether waste is recycled, reused or disposed of. SEBI should also seek information on waste generation and disposal in the top three waste streams under both hazardous and non-hazardous categories. There should be a separate section as well on plastic waste, e-waste, biomedical waste and other types of waste that do not result from manufacturing operations.
Mandate specific energy and water consumption data: The BRSR format carries an optional parameter on energy and water intensity – it is up to the company to report on it. CSE recommends that companies should be asked to give specific energy consumption (SEC) data in kilowatt (kw) or megawatt (mw)/tonne of the product; and specific water consumption (SWC) figures in cubic metre (m3)/tonne of the product. This data will clearly reflect the overall energy and water efficiency of the manufacturing process of a company.
Yadav pointed out, “The BRSR framework is the first attempt by any regulatory authority or agency in India to mandate the sharing of such detailed environmental performance and compliance data in the public domain – sharing of such data in a transparent manner should be one of the key drivers in decision-making by investors in today’s era of climate change where resource availability is becoming a serious issue.”
These recommendations imply that companies must build new capabilities and governance structures to ensure that their sustainability claims are not only reported but matched with ambitious action plans and transparent disclosures on progress. According to a WBCSD report, organizations use materiality assessments more strategically to align their sustainability goals with the real-world impacts they need to manage. This year’s analysis shows a significant 22% increase in companies following a double materiality approach, now standing at 77% of the 91% of companies disclosing their materiality process. Additionally, by building material topics into business strategy and governance companies can drive transformation across all levels of business. Businesses can use these changes to reduce the risk of greenwashing, ensuring that sustainability reporting is rooted in accuracy and transparency, further helping to build trust with stakeholders.
It’s vital to remember that disclosure is not the same as communication. Looking ahead, it is anticipated to have more regular communication about sustainability, across broader channels, to engage a wider range of stakeholders. Comprehensive annual reporting will be complemented with engaging, accessible and ongoing updates through digital channels, podcasts and social media content. Critically, the granular and detailed information required by the disclosures associated with the regulations will need to be ‘translated’ into digestible, meaningful information for wider audiences, that’ll unlock the change and drive the sustainable transformation we need to see.
Way Forward
As Fiona Watson, Senior Director, Corporate Performance & Accountability, WBCSD, was quoted as saying in the report, “No board of directors can ignore the significant pace and impact of changes in the physical, financial and regulatory landscape of sustainability in recent years. As guardians of enterprise value, boards play a central role in supervising the assessment, management and reporting of impacts, risks and opportunities. In the face of new transparency requirements, companies require both incremental adjustments and a fundamental shift in how they approach sustainability reporting and the integration of sustainability into the heart of business strategy and decision making.”
“However, despite growing sustainability commitments and sustainable products, a significant gap persists between public expectations and the reality of many companies’ practices. Issues like rising greenwashing allegations and climate-related litigation are eroding public trust in the corporate community’s commitment to sustainability and its role in civil society.”
“To meet expectations, reporting approaches should transcend compliance to focus on the consistent measurement, management and reporting of related impacts, risks and opportunities, connecting financial performance to sustainability outcomes and improving accountability mechanisms. This is a systemic shift in which we are all finding our way and developing new ways of working across value chains. But as the world changes around us, we need to act fast to accelerate our understanding of the value at risk from inaction and increased exposure and potential future losses.”
“Transparency will help build the business case for sustainability and realize opportunities for growth, gains in productivity and efficiency and more resilient business models and supply chains.”
The way in which the ESG landscape is evolving in India and how businesses are responding to the developments demonstrates the increasing focus on sustainability. The shift in focus is also underpinned by rapid development and enhancement of regulations in this field. As a result, it is vital for companies to thoroughly assess their existing ESG guidelines, processes, control and data management mechanisms, and continue to upgrade them in a timely manner to ensure the quality and consistency of ESG performance reporting. Further, it is equally important to recognize that merely offering ESG data is no longer sufficient. The BRSR Core framework’s execution has underlined the need for greater trust in ESG reporting, with the inclusion of the value chain in the disclosures instead of limiting the regulations to an entity’s operations.
In a nutshell, India’s inaugural journey into BRSR reporting has been a revealing and transformative one for the corporate sector. The experience, rich in challenges ranging from data management complexities to environmental and HR data intricacies, has provided valuable lessons. Companies have navigated these challenges with strategic adaptations, implementing robust frameworks, enhancing ESG awareness, and fostering comprehensive compliance. The process has underscored the necessity of a holistic approach to BRSR reporting, one that necessitates meticulous attention to detail and an unwavering commitment to transparency and ethical governance.
Future reporting needs to include material sustainability-related financial and impact information and ultimately reflect a company’s sustainability performance. This presents an opportunity to further review and evolve the Reporting matters assessment framework and put the accent on the performance and impact criteria. This would result in more actionable insights into how companies can leverage transparent reporting to effectively engage stakeholders, attract investors and ultimately drive positive societal impact and build long-term trust.
As Indian corporations continue to evolve in their BRSR journey, these insights lay the groundwork for more refined and effective sustainability practices, heralding a new era of responsible business conduct that aligns with global standards and stakeholder expectations. As we move ahead, businesses, with their innovation, expertise and capital, will be fundamental in ensuring a sustainable future for India. Corporate reporting on ESG topics will act to ensure that stakeholders understand how business is impacting on, and being impacted by, these issues.
(Disclaimer: This is a compiled article from various sources such as WBCSD, PwC, McKinsey and CES.)
Follow-up articles
‘The NGRBC and BRSR Reporting are Designed to provide Adequate Checks & Balances’ - https://www.supplychaintribe.com/article/the-ngrbc-and-brsr-reporting-are-designed-to-provide-adequate-checks-and-balances
ESG Emissions’ Reporting Mandates a Strong Action from BoDs - https://www.supplychaintribe.com/article/esg-emissions-reporting-mandates-a-strong-action-from-bods
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