Given the evolving landscape of Environment, Social, and Governance (ESG) in Indian markets, the Securities and Exchange Board of India (SEBI) has introduced several modifications to ESG disclosure requirements. In 2021, SEBI introduced the BRSR (Business Responsibility and Sustainability Report) and mandated it as part of the annual report for the top 1,000 entities based on market capitalization from FY 22-23. Further, to strengthen the reporting obligations, SEBI introduced BRSR Core, which provided a framework for assurance and ESG disclosures for the value chain, applicable to the top 150 companies by market capitalization for FY 23-24. The Securities and Exchange Board of India (SEBI) has proposed new measures to simplify ESG (Environmental, Social, and Governance) disclosures for listed companies and their value chain partners.
SEBI has refined the criteria for value chain reporting by narrowing down the number of upstream and downstream partners that must be reported. Previously, this included partners that collectively accounted for 75% of the listed entities' purchases or sales. The new guideline requires reporting only those partners contributing 2% or more individually to the listed entity's purchases or sales. This adjustment is likely to reduce the number of value chain partners significantly, thereby lowering the reporting cost burden on smaller enterprises involved in BRSR disclosures. Additionally, SEBI has suggested an alternative method where value chain partners that contribute 2% or more individually to the listed entity's purchases or sales, and collectively make up at least 75% of the entity's total purchases or sales, should be reported. This change aims to ensure that key partners are adequately covered while reducing the overall number of value chain partners requiring disclosure. SEBI has also allowed value chain partners to opt for voluntary ESG disclosures rather than the "comply or explain" approach.
SEBI has recommended the inclusion of Green Credit disclosures as a leadership indicator under Principle 6 of the BRSR, which focuses on respecting and protecting the environment. Green credits earned through activities like tree plantation under the Green Credit Rules may be reported as part of this ESG leadership indicator. This amendment is intended to encourage listed entities and their value chain partners to engage in environmentally sustainable practices by generating green credits.
Another significant revision involves replacing the term "Assurance" with "Assessment." The committee noted that the term "assurance" had led to unintended consequences, additional financial burdens, and challenges for the industry. Therefore, it is proposed to use "Assessment" instead for a clearer understanding and more practical approach. The Industry Standards Forum (ISF), in collaboration with SEBI, will establish "assessment" standards to align with regulatory objectives and reduce professional bias. Entities will now have the flexibility to choose between Assurance or Assessment based on their discretion.
To prepare for SEBI's recommendations on BRSR, listed companies may prioritise the following steps:
- Redefine Value Chain Partners: Adjust internal systems to identify value chain partners that individually account for 2% or more of the company's purchases or sales by value. Additionally, consider the alternative proposal that includes value chain partners cumulatively accounting for at least 75% of total purchases or sales, reducing the number of partners requiring disclosure.
- Adopt a Voluntary Disclosure Approach: For the first year of ESG disclosures (FY 2024-25), voluntary reporting of the previous year's numbers is permitted. Prepare the company's systems and data collection processes to utilize this flexibility.
- Disclose Green Credits: In accordance with the Ministry of Environment, Forest and Climate Change (MoEFCC) notification, prepare to report on the number of Green Credits generated by the company and its value chain partners.
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