Ministry of Corporate Affairs (MCA) has taken several initiatives on Business Responsibility aspect. In 2009, MCA issued the 'Voluntary Guidelines on Corporate Social Responsibility’ as a step towards mainstreaming the concept of business responsibility. In July 2011, MCA issued the 'National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011' (NVGs). In March 2019, the updated NVGs were released as the 'National Guidelines for Responsible Business Conduct' (NGRBCs).
NVGs were expected to provide guidance to businesses on what constitutes responsible business conduct. In order to align the NVGs with the Sustainable Development Goals (SDGs) and the principles of United Nations Guiding Principles (UNGP) the process of revision of NVGs was initiated in 2015. After substantial revision while keeping in mind the global developments on various frameworks on the subject and also the domestic changes, the National Guidelines on Responsible Business Conduct (NGRBC) were released to replace the NVGs in 2019. As with the NVGs, the NGRBC has also been introduced as a voluntary code for assisting the companies in realization of requirement of a responsible business conduct for business sustainability and the requirement to perform above and beyond the regulatory compliance framework.
It is apt to mention here that Securities and Exchange Board of India (SEBI) in 2012 placed efforts in developing a Business Responsibility Reporting framework basis NVGs and mandated the reporting for the top 100 listed companies by market capitalization. The companies were required to file Business Responsibility Report (SEBI-BRR) through the Listing Agreement. The requirement for filing BRR was extended to the top 500 listed companies by market capitalization from the financial year 2015-16. In December 2019, SEBI extended the BRR requirement to the top 1000 listed companies by market capitalization, from the financial year 2019-20.
The Report brief
Business Responsibility Report is a disclosure of adoption of responsible business practices by a listed company to all its stakeholders. SEBI has made this report mandatory for the top listed companies while considering the fact that these companies have accessed funds from the public, have an element of public interest involved, and are obligated to make exhaustive disclosures on a regular basis.
With the revision in NVGs as NGRBC while retaining all 9 principles with a detailed review, it was decided that the SEBI-BRR framework requires revision by aligning it with the changes made in the voluntary code. The attempt would make it possible to have a comprehensive disclosure on the non financial aspects and would also suit to the requirements of the companies. While the BRR was confined only to the listed companies, the attempts were made by the MCA constituted committee to develop the mechanism for the unlisted ones too.
The Committee, chaired by the Joint Secretary, MCA aims to prepare the Business Responsibility Reporting (BRR) formats for both, listed and unlisted companies, to better reflect the intent and scope of reporting requirements. The Committee recommends that the Business Responsibility Report be called the Business Responsibility and Sustainability Report (BRSR). This is in view of the growing global leaning towards stakeholder capitalism and increasing emphasis on the view that the performance of a company must be measured not only on the return to shareholders, but also on how it achieves its environmental, social, and good governance objectives. The same is in vogue with the name of ESG practices at the global level.
Furthermore, in a latest development, the regulator SEBI on 18 August, 2020 released for public consultation this new format for business responsibility and sustainability reporting, covering environmental, social and governance perspectives, which shall be applicable to the top 1,000 listed entities by market capitalisation. SEBI further said listed entities may adopt the new format on a voluntary basis for the financial year 2020-21. For entities that choose not to adopt the new format, the existing format will apply. However, from the financial year 2021-22, the new format would be mandatory.
The Committee endeavored to ensure that the BRSR reporting format would serve as a single source for all non-financial disclosures. The committee took stock of the following key aspects in the report:
I. Trends in Reporting
Financial Reporting - Traditionally, the focus of business has been generation of wealth for its owners. Therefore, the reporting by them has been focused in financial performance. However, as they evolved to become joint stock companies, their ownership base included general public as well. So, they began to share financial information in an informed manner.
Environment and Social Reporting (Non-Financial Reporting) - It is also known as “sustainability reporting”. Beginning from 1970s to 1992, the reporting in this segment was a bit inconsistent. However, the number of reporting provisions globally has increased tenfold in the next 25 years since the 1992, Rio Earth Summit.
The increase in sustainability reporting has been driven by – the pressure from the stakeholders of companies; increase in government regulation to protect the citizens and the environment and finally, market demand which get triggered by global sustainability performance.
The present report, being a promoter of non-financial reporting, highlights the benefits accruing to the companies in form of increased access to capital, reduced financial risk, increase in value creation, access to markets and increased market share, attracting and retaining talent and awareness of people on social and environment issues.
II. Reporting Format
The reporting formats have been developed for all companies - listed as well as unlisted. However, different reporting requirements have been considered for different classes of companies, especially smaller companies. The formats were developed as questionnaires which allow businesses to disclose aspects material to them, are amenable to measurement, comparable, reliable, and machine readable.
The format of the reporting is based upon various principles of responsible business conduct and are placed with the guidance notes to follow. One is a comprehensive format (given in Annexure-2A of the report), and the other, a Lite version (given in Annexure-3A of the report).
Furthermore, the Committee recognized that at present; only the top 500 listed companies have the experience of business responsibility reporting. Other companies may thus be unfamiliar with any form of sustainability reporting and the proposed BRSR would perhaps be their first effort at developing a sustainability report. Therefore, a pared down Lite version of the BRSR format has been proposed, to make it easier for all companies to begin reporting on sustainability reporting related issues. This again has the Essential and Leadership category of questions, but fewer in number, and seeks information which such companies should be able to provide.
III. Basic structure of the Business Responsibility and Sustainability (BRSR) Reporting framework
It has been divided into three sections and purpose of each section has been given as follows:
(i) Section A: General Disclosure: The objective of this section is to get basic information about the company such as size, location, products, no. of employees, CSR activities etc. Further, additional disclosures are also required to be made regarding operations of the company’s proximity to environmentally sensitive areas.
(ii) Section B: Disclosure on policies and processes relating to leadership, governance and stakeholder engagement are required to be made under this section.
(iii) Section C: This section will highlight how a company is performing in respect of each principle and core element of the National Guidelines for Responsible Business Conduct’ (NGRBC). This section requires companies to demonstrate their intent and commitment to responsible business conduct through actions and outcomes.
IV. Recommendation of the Committee
The committee recommended that the implementation of reporting requirement should be done in phases so that smaller companies have the time to adapt and learn from the larger ones. With regard to listed entities, reporting may be done by the top 1000 listed companies (by market capitalization) as applicable presently or as prescribed by SEBI. Prior to implementing the reporting requirements for listed entities, SEBI may also adopt the due process of consultation. The reporting requirement may be extended by MCA to unlisted companies above a specified threshold of turnover or paid-up capital.
V. Way Forward
As a first step, the BRSR Report needs to be integrated with the filings made on the MCA21 Portal. This shall enable leveraging technology for capturing machine readable data, making it amenable to data analysis, and rendering it in presentable forms for further use and decision making.
It is also the vision of the committee to develop a Business Responsibility – Sustainability Index in which preference will be given to companies who rank high on the index on the basis of responsible business conduct.
It is also hoped that such non-financial/sustainability disclosures will be considered by the banks, financial institutions and credit rating agencies to assess the credibility of a company.
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