The Business Responsibility and Sustainability Reporting (BRSR) reporting requirements were published by SEBI in May 2021 applicable to the top 1000 companies. Since the notification was already one month into the financial year 2021-22, the filing of BRSR was made voluntary for that year and mandatory for financial year 2022-23. But when the amendments to BRSR Core was notified through the circular on July 12, 2023, the top 1000 companies have to comply for the same financial year which is FY 2023-24. For the top 150 companies, even reasonable assurance is mandatory. Since it is not stated that the disclosure shall be on a comply-or-explain basis, it should be treated that it is comply. While one can argue that the disclosures required are either earlier essential indicators (in earlier BRSR) or data that can be gathered without difficulty, the challenge is the capacity inside the organizations. In most companies the budgets for the FY 2022-23 are finalized much before July. A simple example is that the reasonable assurance is going to cost the companies above 3 times the fees of limited assurance. Because of the independence requirements which are stringent than IESBA requirements, the number of assurance agencies the top 150 companies can engage is very limited. Add to that the complexity of reasonable assurance and the related risk exposures for assurance agency. This can drive the fee of assurance to even more than 4-5 times the limited assurance fee in some segment of Industry. Of course, when it is a regulatory mandate, companies will have to find budgets.
Let us look at the value chain reporting requirements of BRSR. I am writing this at a time when the discussions have already started within industry associations regarding the onerous value chain reporting requirements of BRSR. The BRSR disclosure requirement for value chain is applicable for top 250 companies for FY 2024-25. For companies between 150-250, it is a double whammy in FY 2024-25. While the amendments give an option of comply-or-explain for value chain reporting, it is not clear what kind of explanations will be acceptable. It is also stated that the value chain disclosure needs to undergo limited assurance (comply-or-explain).
Value chain shall encompass the top upstream and downstream partners, of a listed entity, cumulatively comprising 75% of its purchases / sales (by value) respectively. Listed entities shall report the KPIs in the BRSR Core for their value chain to the extent it is attributable to their business with that value chain partner. Such reporting may be segregated for upstream and downstream partners or can be reported on an aggregate basis. While based on a Life Cycle Analysis (LCA) it might be possible to report on some environmental parameters on an aggregate basis, for most KPI’s in BRSR core aggregate reporting may not be feasible. It is also possible to have some level of influence in upstream (vendors/suppliers) value chain to collect limited information. But it is going to be almost impossible to get information from downstream value chain (customers/ dealers/ business partners). Let us look at the BRSR Core KPI’s and see the possibility on whether it is possible to report or not.
| BRSR Parameter | Possibility to report | |
| 1 | GHG Footprint | It is possible for companies who are already reporting on scope 3 emissions and have included these categories. They need not go and seek this from every value chain partner as there are methodologies to estimate these emissions. But as the energy mix is changing across the world, care should be taken to adjust the factors used to do the estimate the emissions. The circular is not clear whether estimates of GHG emission should suffice. I am making an assumption here. |
| 2 | Water Footprint | There is very limited potential to do a lifecycle water footprint. Unlike GHG, water consumption is not something which has acceptable global standards. This is because impacts related water is not fungible across globe (not even India). Seeking the information for 75% of the companies purchases and sales will be a mammoth task. |
| 3 | Energy Footprint | Life Cycle Analysis (LCA) can throw some level of estimates on this. But for services companies which provide bespoke services it will be possible only to do a 75% overall allocation based on revenue or any other factor. But again, this will be possible to report on estimates. |
| 4 | Embracing circularity | From here, it gets tough. The KPI’s include, Plastic waste, e-waste, bio-medical waste, battery waste, hazardous waste, radio-active waste etc. While in downstream, it will be possible to do estimates related to products a company produces. It will be impossible to do even an estimation in the upstream. |
| 5 | Enhancing employee well-being and safety | Seriously, do we think that we can collect data for 75% of our value chain on spending on employee well being as a % of their revenue? Even data related to safety will be impossible to secure for 75% of the value chain. Even if we collect this information, how can this be attributable to the reporting company? |
| 6 | Enabling Gender Diversity | Gross wages paid to female employees and POSH complaints reported for 75% of the value chain are again impossible to monitor and not attributable. |
| 7 | Enabling inclusive Development | The KPI’s that has to be reported from the value chain are how much input material they source from MSME’s and jobs created in smaller towns. While as a country, there can be some good influence that can be generated through appropriate policies and regulations, not sure how this data gathering of value chain will help. The overall data at country level is already available for any reforms. |
| 8 | Fairness in engaging with customers and suppliers. | KPI like number of days of accounts payable and number of security breaches in 75% of the value chain are impossible to get monitored even if the company has a very high level of influence in the value chain. |
| 9 | Openness of business | Even for biggest of companies, they have to start evaluating the risk related to reporting on some of these KPI’s, how can we expect the 75% of the value chain partners to report and how can that be attributable to the business of the listed entity reporting? |
I have seen many consulting companies approaching companies as to how they can help in value chain reporting, but with my limited experience, those consultants should be magicians to help companies comply fully. Also remember magic is trick and not reality. I sincerely hope that the discussions that has started within industry associations reach SEBI and a more pragmatic approach is considered and necessary amendments are incorporated soon, so that companies can get prepared in time.
Very well articulated set of concerns, thank you