Business Responsibility & Sustainability Reporting or the BRSR is a mandatory disclosure for top 1000 listed companies by market capitalization in India. Furthermore, the Ministry of Corporate Affairs of India has recommended the BRSR to be extended to unlisted entities based on specified thresholds. It also encourages companies to report voluntarily on the framework.
The natural question that arises for many CXOs: ‘What good would this do to the Company?’. For those who view BRSR merely as a cost center, here are some points that may probably justify reporting using this framework:
1. Becoming Investable or Investor-Ready:
According to Avendus Capital, ESG-focused equity funds in India have grown from $ 330 million in 2019 to $1.3 billion in June 2023. They are expected to account for 34% of the total AUM by 2051.
But how would funds evaluate companies if they do not publish any ESG-related information? For this reason, SEBI has mandated ESG schemes of Mutual Funds to invest only in such companies which have made comprehensive Business Responsibility and Sustainability Reporting (BRSR) disclosures. It is further mandated that an ESG scheme shall invest at least 65% of its AUM in companies which are reporting on comprehensive BRSR and are also undergoing assurance on BRSR Core disclosures.
2. Essential for Certifications & Ratings
In India, only entities certified by SEBI are permitted to provide ESG rating services (ESG Rating Providers (or ERPs)) for reporting purposes. They issue BRSR scores which are reported monthly by Mutual Funds for their ESG schemes and securities.
Even rating providers outside India rely on the companies’ disclosures for issuing and updating ratings. Often a sustainability report is the first step to be ready for an external certification.
Hence, companies with better performance and comprehensive disclosures on E, S, and G stand to gain a higher rating.
3. Benefits to Value Chain Partners:
Top 250 listed companies are now required to make disclosures on the BRSR Core for their value chain partners. Value chain partners represent both upstream and downstream partners that cumulatively comprise 75% of purchases or sales in value. This implies that even an unlisted supplier or a distributor shall have to report on BRSR if it is transacting with the applicable listed companies at a large scale.
These disclosures have forced companies to re-evaluate their sourcing and distribution practices and make it as sustainable as possible. This poses a great opportunity for businesses to compete on their ESG performance while bidding for larger projects.
4. Cost Savings & Brand Building:
As per experts, companies with higher ESG scores find it easier to raise funds at lower interest rates. On the operational front, ESG efforts could contribute to cost reductions on sourcing, producing, packaging, logistics and even help avert future liabilities. The FMCG giant Unilever managed to save US$ 1.27 billion over 10-20 years in costs by adopting sustainable policies (which included regenerative agriculture and water conservation).
And these disclosures definitely improve the company’s brand image. A study by Bank of America reported that 92% of gen Z consumers would shift to brands that support ESG issues.
We shall end this discussion with a famous quote by Peter Drucker- “You can't manage what you can't measure.” Reporting may be the first step for companies to prompt real action on matters that affect all stakeholders, including the community at large.
In case you have built the conviction and need help with reporting on BRSR or other sustainability reporting frameworks, feel free to reach out to us at disha.veera@esgityadvisors.com
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