In order for the companies to percolate down its sustainability targets of business operations to their value chain partners, on 12^th July 2023 SEBI introduced a regulatory framework that adds up new ESG metrics for mandatory disclosure under ‘BRSR Core’ for specific listed companies in India.

The key aspects in the framework prescribed by SEBI includes:

• Annexure I- BRSR Core
• Annexure II- Revised format for BRSR
• ESG Disclosures for Value Chain Partners
• Assurance requirements for BRSR Core and Value Chain

BRSR Core is being developed to achieve the twin objectives of improving credibility and limiting the cost of compliance.

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 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, Business openness, and gross wages paid to women etc. To facilitate better global comparability, intensity ratios based on revenue adjusted for Purchasing Power Parity (PPP) have also been incorporated.

From Financial Year 2023-24, the top 1000 listed entities (by market capitalization) shall makes disclosures as per the updated BRSR format, as part of their Annual Report.

BRSR Core- 9 Attributes

The metrics/attributes set under BRSR Core for reasonable assurance is outlined below:

1. Green-house gas (GHG) Footprint
2. Water Footprint
3. Energy Footprint
4. Embracing Circularity- Details related to waste management by the entity
5. Enhancing Employee Wellbeing and Safety
6. Enabling Gender Diversity in Business
7. Enabling Inclusive Development
8. Fairness in Engaging with Customers and Suppliers
9. Open-ness of Business

~BRSR Requires Assurance too!

In the aforementioned framework, SEBI has also mandated the specific listed companies in India by market capitalization to provide “reasonable assurance” on the above metrics in a phased manner as indicated below, starting from Financial Year 2023-24.

Basically, the reliability of the reports is important for sustainability reports to be credible. Assurance on the accuracy and reliability of sustainability information helps to enhance the confidence of the stakeholders in the reported information and provides the intended users with useful data for decision making.

The BRSR Core framework also outlines the methods to simplify reporting by corporates and verification of the reported data by an assurance provider.

The applicability of reasonable assurance framework to listed companies is mandated as below:

Assurance Provider

The regulation underlines how essential it is to choose an assurance provider with the necessary expertise and make sure there are no conflicts of interest. It urges listed entities to steer clear of choosing assurance providers or their associates who have competing interests, such as business dealings with the listed entity or its group entities or providing of non-audit/non-assurance services.

In addition, there are numerous national and international frameworks and standards that assurance service providers utilise to guarantee sustainability and non-financial disclosures. The two key assurance standards that are widely used for providing assurance of sustainability information are:

1. Assurance Engagements Other than Audits or Reviews of Historical Financial Information – ISAE3000
2. Accountability 1000 Assurance Standard (AA1000AS)

Challenges & Considerations of Assurance

Companies may encounter challenges as a result of SEBI’s new ESG metrics as they may find it difficult to collate non-financial data that has been scattered across numerous internal systems, assess the impact of disclosing private data on delicate governance issues, and begin coping with the complexity of collecting and auditing data from thousands of suppliers / value chain partners.

Taking assurance into account, further problems beyond the one mentioned above may impose on the companies-

1. Nature of ESG Data- The information of ESG can be complex and subject to interpretation, this can make assurance a challenging process.
2. Evolving Standards- ESG reporting standards and regulations are continually evolving, that require companies to stay alert and ensure that they comply with updated standards.

• Limited Assurance Scope- Depending on the engagement, ESG Assurance may provide limited assurance, which means it does not guarantee the accuracy of all ESG data.

Assurance Significance

A company’s ESG claims may gain more credibility with assurance on ESG disclosures, which also reflects a company’s commitment to transparency. Additionally, it will increase trust among all stakeholders, including customers, employees, regulators, and the community, while assisting investors in making informed investment decisions based on the facts presented in the report.

~Move towards Value Chain Partners Disclosures

In reference to value chain, SEBI in its framework introduced ESG disclosures for the value chain and assurance regulations highlighting that the disclosures for value chain shall be made by the listed company as per BRSR Core, as part of its Annual report.

In this regard, the value chain must encompass the principal upstream and downstream partners of a listed entity, which collectively account for 75% of its purchases or sales by value respectively.

For reporting purposes, listed companies must provide the KPIs described in the BRSR Core that are relevant to their value chain partners and are ascribed to their business connections with them. This reporting can be provided separately for upstream and downstream partners or presented in an aggregated format.

The scope of reporting, together with any inferences or estimates made, should be expressly mentioned in the report to ensure transparency and clarity. This all-encompassing strategy will improve comprehension of the listed entity’s ESG performance and its impact on the value chain.

ESG disclosures for the value chain will be mandatory (on a comply-or-explain basis) for the top 250 listed entities (by market capitalization) starting from Financial Year 2024-25. Companies falling under this category must comply with the disclosure requirements. In exceptional cases where compliance may not be feasible, they are required to provide a clear explanation for their decision.

The limited assurance of the above shall be applicable on a comply-or-explain basis from Financial Year 2025-26.

Conclusion

Improved environmental, social, and governance practises will result from the implementation of the regulatory framework for ESG disclosures and the requirements of BRSR core in annual reports, which will considerably increase transparency and accountability among listed firms. This framework aims to advance ethical value chain management in the corporate sector and encourage sustainable business practises.

It will pivot the organisations to change their focus to more extensive non-financial reporting practises, which will significantly advance the corporate sustainability path.

Whilst the objectives towards greater disclosures are laudable, it needs to be seen how India Inc. is able to cope up on the same especially when it comes to getting the value chain partners to provide information and its assurance since many of them would be from the MSME sector.

Companies who successfully meet the standards of the new framework will have an advantage in luring foreign investors and creating a sustainable future.