The Securities and Exchange Board of India (SEBI) is proposing significant revisions to the Business Responsibility and Sustainability Reporting (BRSR) Core framework. These changes aim to streamline reporting, reduce compliance costs and better align with national sustainability goals. But what do these changes mean for your business, and how can you prepare?
What is BRSR?
BRSR is a regulatory requirement for the top 1000 listed companies in India. It mandates environmental, social, and governance (ESG) performance disclosure. This includes everything from carbon emissions and water usage to employee diversity and board composition.
What is BRSR Core?
The BRSR Core represents a subset of the comprehensive BRSR and includes a specific set of key performance indicators (KPIs) / metrics across nine ESG attributes. With a focus on the Indian / emerging market context, additional KPIs have been identified for assurance, such as job creation in small towns, business openness, and gross wages paid to women. To facilitate better global comparability, intensity ratios based on revenue adjusted for purchasing power parity (PPP) have been incorporated. Also for easy reference, the BRSR Core includes a cross-reference to the disclosures found in the BRSR.
SEBI’s Proposed Changes:
Redefining Value Chain Partners:
Current: BRSR framework defines “value chain” as encompassing upstream and downstream partners that cumulatively account for 75% of a listed entity’s purchases or sales (by value). This means a company needs to report ESG disclosures for all partners, no matter how small their individual contribution, until they reach the 75% threshold.
Proposed: The proposed definition refines this by introducing two criteria:
- Individual Contribution: Each upstream or downstream partner must individually comprise 2% or more of the listed entity’s purchases or sales by value.
- Cumulative Contribution: The partners meeting the 2% threshold must collectively account for at least 75% of the listed entity’s purchases or sales.
Example: Let’s say Company X has 100 suppliers. Under the current definition, they might need to report on all 100 if they cumulatively contribute to 75% of purchases. Under the proposed definition, Company X would only need to report on those suppliers who individually contribute at least 2% to their purchases. If, for instance, only 30 suppliers meet this criterion and together contribute 75% of purchases, Company X would only need to report on these 30 suppliers.
Value Chain Disclosures:
Current: The framework mandates that companies report ESG (Environmental, Social, and Governance) data for their value chain partners on a “comply-or-explain” basis. This means companies must either disclose the data or provide a valid explanation for not doing so.
- Proposed:
- Voluntary Reporting (FY 2024-25): For the first year of reporting, the requirement to disclose previous year ESG data for value chain partners will be made voluntary, recognizing the initial challenges in data collection.
- Shift to Voluntary Disclosures: Instead of the “comply-or-explain” approach, ESG disclosures for value chain partners and their third-party verification will be made voluntary. This gives companies more flexibility and time to establish the necessary systems and processes without the pressure of immediate compliance.
Rationale for the proposed change: These changes are driven by feedback from businesses highlighting the difficulties in obtaining and verifying ESG data from value chain partners. The transition to voluntary reporting gives companies more flexibility and time to establish the necessary data collection and verification mechanisms without facing immediate penalties for non-compliance.
Green Credits Reporting:
Proposed: A new leadership indicator would be added to track the number of Green Credits generated by the company and its value chain partners. This aligns with the Indian government’s focus on promoting sustainable practices.
What is the Green Credits Program (GCP)?
The GCP is a government initiative aimed at incentivizing businesses, individuals, and local bodies to adopt environmentally sustainable practices. It does this by awarding Green Credits for activities like tree planting, water conservation, and other eco-friendly actions.
Key Developments:
- Draft Rules: The Ministry of Environment, Forest and Climate Change (MoEFCC) released draft implementation rules for public comment on June 26, 2023.
- Final Rules: The “Green Credit Rules, 2023” were officially notified on October 12, 2023, designating the Indian Council of Forestry Research and Education as the program’s administrator.
- Methodology for Tree Plantation: On February 22, 2024, the MoEFCC outlined the methodology for calculating Green Credits specifically for tree plantation activities.
- Methodology for Awarding Green Credits (For Tree Plantation):
While the specifics might vary for different activities and is still under development, the methodology for tree plantation involves calculating credits based on factors like:
- Number of trees planted: More trees planted, more credits earned.
- Survival rate of trees: Credits are adjusted based on how many trees survive over time.
- Type of land: The type of land where trees are planted (e.g., degraded land) can influence the number of credits.
- Usage of Green Credits: The notification clarified that green credits earned from tree plantation can be used for reporting under ESG (Environmental, Social, and Governance) leadership indicators or CSR (Corporate Social Responsibility) initiatives. It supports the government’s goal of using green credits as a reporting metric for environmental performance and aligns with initiatives like the Global Green Credit Initiative (GGCI), launched by India and the UAE, which aims to incentivize pro-planet actions globally.
Assurance vs. Assessment:
Current: Companies must obtain “assurance” for their BRSR Core disclosures.
Proposed: The term “assurance” would be replaced with “assessment or assurance” to provide more flexibility.
Applicability:
- FY 2023-24: Companies will have the flexibility to choose between assessment or reasonable assurance for their BRSR Core disclosures for this fiscal year.
- FY 2024-25 Onwards: The flexibility to choose between assessment or assurance will continue for all BRSR disclosures.
Rationale:
- The revised recommendation acknowledges that while assessment may be sufficient for some companies, others may have stakeholders who prefer or demand assurance due to its higher level of scrutiny. By offering both options, the committee aims to strike a balance between easing the compliance burden for companies and catering to the diverse needs of stakeholders.
Navigating the Changes with Achilles
These proposed changes represent a significant shift in India’s ESG reporting landscape. Achilles, an internationally recognized leader in supply chain risk management and sustainability solutions, is uniquely positioned to help companies navigate these changes and achieve their sustainability goals.
- Value Chain Expertise: Achilles has extensive experience working with multinational enterprises to identify, assess, and report on their value chain partners. We understand the complexities of data collection and reporting and can help companies to ensure compliance with evolving regulations.
- ESG Risk Assessment and Global Experience: Our robust ESG risk assessment protocols align with international reporting frameworks and industry best practices. Achilles works with multinational companies globally, helping them comply with various ESG reporting frameworks and regulations. We also help companies identify and mitigate risks throughout their supply chains.
- Data-Enabled Reporting: We provide data validation and due diligence services to ensure the accuracy and completeness of ESG disclosures. We leverage advanced analytics to provide actionable insights into ESG performance. This helps companies identify improvement areas, benchmark against peers and effectively communicate their sustainability progress to stakeholders.
- Assessment and Assurance Services: Achilles has a long history of providing sustainability-related assessments for companies complying with various disclosure requirements. We offer a cost-effective alternative to traditional assurance providers.
Looking Ahead
SEBI’s proposed BRSR reforms offer a unique opportunity for companies to enhance their sustainability practices. By partnering with Achilles, businesses can confidently navigate these changes, turn compliance into a strategic advantage, and contribute to a more sustainable future.
