Last week, the Securities Exchange Board of India (SEBI) introduced two major updates for the Business Responsibility and Sustainability Report (BRSR) as follows:
Ease of Doing Business Reforms for BRSR
Industry Standards on Reporting of BRSR Core
Here is what you need to know:
Ease of Doing Business Reforms for BRSR
a. Deferring Value Chain Reporting:
Earlier:
Value chain reporting on BRSR Core was applicable to top 250 listed entities from FY 2024-25.
A limited assurance was mandatory for the same from FY 2025-26.
Value chain partners covered top upstream and downstream partners of the listed entity that cumulatively comprised 75% of its purchases / sales (by value) respectively.
There was no guidance on reporting of previous year information for value chain partners.
Now:
Value chain reporting on BRSR Core has now been deferred to FY 2025-26. It may however be voluntarily submitted during FY 2024-25.
As a result, the requirement for limited assurance has also been deferred by a year to FY 2026-27. Further, the regulator now permits conducting an “assessment” in place of an “assurance”.
The definition of value chain partners has now been restricted to include only those upstream and downstream partners that individually comprising 2% or more of the listed entity's purchases and sales (by value), respectively, while providing that the listed entity may limit disclosure of value chain to cover 75% of its purchases and sales (by value), respectively.
Reporting of previous year numbers will be voluntary in case of first year of
reporting of ESG disclosures for value chain.
What does this mean for companies?
The process of implementing value chain reporting can be tedious, mainly because the entity in itself does not have control over the data collection of its partners. Deferring that by a year provides a much-needed transitionary gap needed to systematically implement processes for data collection.
“Assurance” is undertaken based on various global or domestic standards that may contain requirements beyond mere verification of data, and thus impose cost burden and other challenges for corporates. Hence, to facilitate ease of compliance while mitigating risks of greenwashing, ‘assessment’ can be considered as an alternative to ‘assurance’. For the ‘assessment’ to be independent and include some minimum levels of check, the SEBI has mandated the Industry Standards Forum (ISF) to implement standards around ‘assessment’.
Previously, there was no cap on the number of value chain partners covered under the overall cap of 75% of business. However, with a minimum threshold of 2% per partner, not more than 38 partners [75 (overall coverage)/ 2 (minimum threshold)] would be covered under the reporting process.
It was previously impracticable for most value chain partners to report previous year information in the first year of implementation. SEBI’s clarification now erases that concern.
b. Disclosure of Green Credits:
Earlier: There was no provision to report on green credits generated or purchased by companies
Now: A leadership indicator in Principle 6 of BRSR has been introduced for disclosure of
Green Credits generated or procured by the listed entity and its top-10 value chain partners.
What does this mean for companies? Companies now get a chance to demonstrate their stewardship through actionable steps such generating or procuring green credits. Further with the implementation of Carbon Credit Trading Scheme, it is essential to include disclosure of credits purchased (if any) in the BRSR.
Industry Standards on Reporting of BRSR Core
The Industry Standards Forum, comprising of representatives from three industry associations, viz. ASSOCHAM, CII and FICCI, under the aegis of the Stock Exchanges, has formulated Industry Standards (referred to as ‘Standard) for the effective implementation of BRSR Core.
The Standard provides guidance in two parts – general requirements and attribute specific requirements.
A. General Requirements:
The Standard clarifies the method of calculation of intensity ratios, reported for Principle 6: Environmental disclosures. It provides guidance on PPP adjustments and use of output figures, both for manufacturing and services business.
The Standard also provides an option for companies with data constraints to apply spend-based approach to estimate GHG emissions. It also provides emission factors that may be used when adopting the approach.
B. Attribute-wise Requirements:
The Standard clarifies the sources that may be used to calculate scope 1 emissions. It also recommends use of Central Energy Authority’s emission factors for calculation of scope 2 emissions for Indian entities.
The Standard provides references for estimating water use where calculation of water intake or discharge may not be feasible. It also guides entities on the division of water consumption by units when only consolidated information is available.
Another attribute-level guidance covers calculation of cost of employee well-being measures. It clarifies the measures that may be included in the cost and urges use of common denominators that may be referenced to the financial statements.
The Standard defines ‘trade-houses’ which was a major grey area in the last reporting cycle. It also clarifies how services businesses can report sales and purchases ratios vis a vis manufacturing/ trading businesses.
All the points covered in the Standard precisely touch the ambiguous areas and provide much-needed clarity for better disclosures. However, we continue to expect further guidance on:
i. Standards for Assessment
ii. Value chain reporting, and
iii. Alignment with IFRS S1 & S2
With the third year of mandatory reporting closing in, companies now have much better clarity on their sustainability reporting for this year. However, with RBI’s climate disclosure regulations pending approval and countries adopting IFRS (ISSB) climate standards globally, it remains to be seen how the BRSR shall integrate across frameworks and stand the test of time.
For any assistance, feel free to reach out to us at info@esgityadvisors.com.
The detailed updates may be accessed here:
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