“The ESG strategy of an organization is no longer driven by the preparation of an ESG report for its stakeholders, particularly the investors. The ESG strategy is more being used as a tool to identify and manage environmental, social and governance-related risks, improve competitiveness, encourage innovations and be the sector leader,” shares Dinesh Agrawal, Principal Consultant, Consocia Advisory, during this exclusive interview…
Please enlighten us on the genesis of BRSR…
Dinesh Agrawal
It is an Ongoing Commitment for Sustainable Business Practices. The Business Responsibility and Sustainability Reporting (BRSR) is not a one-time Compliance activity but an ongoing process for companies to ensure compliance with the National Guidelines on Responsible Business Conduct (NGRBC) and manage ESG risks. The crux of the issue lies in the broader goals that a company aims to address.
This has become increasingly critical, as highlighted by a recent incident where a company declared in its BRSR that no child labour was deployed, but for an accident that revealed the presence of child labour in their factory. This false declaration not only tarnished the company’s reputation but also exposed board members to legal risks, violating basic laws and Securities and Exchange Board of India (SEBI’s) Listing Obligations and Disclosure Requirements (LODR) requirements for listed companies.
The NGRBC and BRSR reporting are designed to provide adequate checks and balances which are often bypassed with a focus on meeting the LODR requirement of the SEBI Act.
The NGRBC reiterates the need to encourage businesses to ensure that not only do they follow these guidelines in business contexts directly within their control or influence, but that they also encourage and support their suppliers, vendors, distributors, partners and other collaborators to follow them.
At the core of BRSR reporting are the NGRBC principles, which provide a comprehensive framework for businesses to assess and report their commitment to responsible and sustainable practices. NGRBC comprises nine principles that cover various aspects of business operations:
Businesses should conduct and govern themselves with integrity, transparency, and ethical behavior. Businesses should provide goods and services that are safe and contribute to sustainability.
Businesses should promote the well-being of all employees.
Businesses should respect the interests of and be responsive to stakeholders, especially those who are disadvantaged or marginalized.
Businesses should respect and promote human rights.
Businesses should respect and make efforts to protect and restore the environment.
Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner.
Businesses should support inclusive growth and equitable development.
Businesses should engage with and provide value to their customers and consumers in a responsible manner.
These principles guide businesses in aligning their operations with the broader goals of sustainability, responsible conduct, and positive societal impact.
The scope and application of BRSR extends far beyond traditional financial reporting, encapsulating a company’s commitment to ethical conduct, sustainable practices, and long-term value creation. BRSR reporting offers a structured framework for companies to communicate their responsible business initiatives and their impact on the environment, society, and governance. Understanding the scope and application of BRSR reporting is essential for companies seeking to align with evolving stakeholder expectations and regulatory demands.
The BRSR Core is a sub-set of the BRSR, consisting of a set of Key Performance Indicators (KPIs) / metrics under 9 ESG attributes. Keeping in view the relevance to the Indian / Emerging market context, few new KPIs have been identified for assurance such as job creation in small towns, open-ness of business, gross wages paid to women, etc. Further, for better global comparability intensity ratios based on revenue adjusted for Purchasing Power Parity (PPP) have been included.
As per the SEBI mandate, the information sought is categorized as “Essential” and “Leadership”. While the essential indicators are expected to be disclosed by every entity that is mandated to file this report, the leadership indicators may be voluntarily disclosed by entities, which aspire to progress to a higher level in their quest to be socially, environmentally and ethically responsible.
Are we moving towards a framework which is action-oriented rather than gauging the impact?
There are more than 400 ESG ratings, so the important question is who is driving the efforts – is it the Investor or the Customers? I am happy to share that there’s currently a movement going on to bring all these reporting parameters under one uniform rating system so that it becomes easier for organizations to be weighed on a uniform platform. More than just reporting, they also need to have an action plan in place to improve performance on all parameters.
What do you think is the crucial importance of reporting when it comes to Scope 3 emissions?
Let me present to you an interesting insight into ‘the butterfly effect’ – a term proposed by American meteorologist Edward N. Lorenz. This will help us understand the critical role of a strong supply chain in driving a company’s success and how it can create a #ButterflyEffect with far-reaching impacts across operations. He theorized that a butterfly gently flapping its wings in Brazil can set off a chain of events that eventually cause a hurricane halfway across the world in Texas. Global supply chains are similarly interlinked. Their complexity and interdependency mean that one small change can snowball into momentous impact. Such is the impact of supply chain, and it has only accentuated due to fast shaping up global turn of events.
Scope 3 emissions cover the indirect emissions from their value chain including upstream and downstream activities. In the manufacturing business, its contribution is relatively low as compared to Scope 1 and 2 emissions. But in the IT and financial sector, its contribution is significantly more than Scope 1 and 2.
Therefore, reporting scope 3 emissions has become crucial to get realistic and trustworthy data on total carbon emissions and more and more companies are making efforts to report on scope 3 emissions. SEBI has now mandated the companies to report on BRSR Core from their value chain as per the following timeline. The value chain represents a major portion of scope 3 emissions.
FY 23 – 24: Top 150 listed companies
FY 24 – 25: Top 250 listed companies
FY 25 – 26: Top 500 listed companies
FY 26 – 27: Top 1000 listed companies
What key metrics or indicators do companies need to prioritize to assess the effectiveness and impact of a sustainability strategy within their organizations?
As a thumb rule, the key indicators that drive the sustainability strategy are energy intensity; carbon intensity; water intensity; and waste intensity. These are environmental issues that impact the economics of business operations. However, social and governance aspects pose serious risks in the fast-changing scenario including the issues of compliance.
How can companies approach sustainability reporting and communication to ensure transparency and accountability to stakeholders?
The best way to address the issues of transparency and accountability to stakeholders is to change the mindset from annual sustainability reporting. The company should report to all stakeholders on a regular and frequent basis. The corporate presentations including sustainability aspects are presented to investors at least quarterly. A similar approach should be adopted with all other stakeholders.
What are the challenges that companies face while reporting sustainability measures? How can they address them?
The first and foremost challenge is the commitment of the top management without which it remains a compliance exercise. Then there are issues of what is material to the company and the stakeholders. Data management and accountability for compiling and seeding the data is another issue. These issues can be addressed by establishing the systems and processes, which need to be reviewed and evaluated for effectiveness and efficiency regularly.
In an ever-changing regulatory and societal landscape, how can companies track and adapt organization’s ESG strategy to remain competitive and compliant?
The ESG strategy of an organization is no longer driven by the preparation of an ESG report for its stakeholders, particularly the investors. The ESG strategy is more being used as a tool to identify and manage environmental, social and governance-related risks, improve competitiveness, encourage innovations and be the sector leader. It is bringing in a shift towards the use of environmentally friendly materials and manufacturing processes ahead of its competitors giving a market edge. Companies are getting ready not only for compliance with national regulations but the future international regulations as well.
What is the way forward in sustainability reporting? Where do you see India’s stance in this fast shaping up landscape?
India is probably the only country where the government has issued national guidelines on responsible business conduct (NGRBC) which among other things includes a reporting framework. Taking cue from this, the Securities and Exchange Board of India (SEBI) mandated the Business Responsibility and Sustainability Reporting (BRSR) for the top 1000 listed companies. This is being expanded to their supply chain as well. Thus, India has been very proactive to bring in transparency and accountability through sustainability reporting among the companies. This is likely to be expanded to more and more companies in future.
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