Business Responsibility and Sustainability Reporting – A Challenge Ahead

Business Responsibility Reporting (“BRR”) is a reporting which is currently done by a certain selected group of listed companies. The philosophy behind is to remain accountable towards stakeholders, and also at the same time environmentally sustainable. There have been several developments seen globally in this aspect. With a view to align the same with the globally set principles, it was felt desired to revamp the framework of BRR under the Indian laws. As a result, MCA has recently come up with a Report of the Committee on the Business Responsibility Reporting on 11th August, 2020 where it has recommended several additions with an aim to make BRR a “one-stop source for all non-financial disclosures”. Further, it has also widened the scope of BRR to “Business Responsibility and Sustainability Reporting (“BRSR”). Details on employee benefits, complaints on bribery, plant/office location near a protected area, penalty or fine for violation of principles or competition laws, payment of minimum wages, etc. are some of the few additions recommended.  Further, the applicability is proposed to be extended to all companies and even LLPs in a span of 5 years starting from 2021-2022.

Soon after this Report, SEBI has also placed its Consultation Paper on 18^th August, 2020 open for public comments wherein it has sought inputs from public on the comprehensive format of BRSR put forward by the Committee.

The Article briefly captures the key takeaways of the Report and the questions revolving around it. For a detailed analysis on the topic, our Article on the same can be referred here.

Necessity of BRSR

It was seen that the while the large business houses were complying with the extant BRR requirements, however, there was a lack of parity in this. A sample study of 490 listed companies was done by the Indian Institute of Corporate Affairs (“IICA”) for examining the need of a comprehensive format of reporting. During the study, it was observed that due to an absence of standard guidelines, companies were making their own set of disclosures and had multiple interpretations on a same point. While, some of the reports contained a few quantitative data, few were only providing qualitative data. Hence, these issues gave rise to the need for a standardized framework of BRSR.

Purpose behind the Report

The purpose behind the Report is mainly to provide all stakeholders with “one-stop source on non-financial disclosure”. Not only the larger companies, BRSR shall also be required to be done by smaller unlisted companies, who will be required to make such disclosure. Further, along with this, the disclosure under BRSR shall be utilized by several credit rating agencies, banks, financial institutions, that will use the disclosures made for data analytics and ascertaining the credibility of the company. This information will be then used by Government for procurement purposes and such businesses will be preferred that demonstrate good business conduct.

Reporting Authority – SEBI or MCA? 

Regulation 34(2) of the SEBI (LODR) Regulations, 2015 provides for BRR for top 1000 listed entities by market capitalization. Further, the current format is also prescribed by SEBI, however, considering the recommendations to make BRSR an electronic form on MCA21 portal, the question that arises is who will be the authority to which the companies shall report?

Since, the Report has been recommended by MCA, it is most likely that the form will be filed in the MCA21 portal, however, looking at the current reporting authority, i.e. SEBI, there is an uncertainty on whether SEBI will continue to be addressed by the companies. Further, besides section135, there is no other section under the Companies Act, which deals with social or environmental concerns.

Accordingly, it is expected that either the rules will be amended at any appropriate place under the Act, 2013 or may be a specific provision may be added. Having said that, please note that currently the same has not been made clear.

Further, since it will be an electronic based filing, it may no longer be a part of Annual Report and therefore, an inspection of the e-Form will required to be done after payment of a nominal fee with MCA.

Conclusion

While the recommendations spell out elaborate contents for companies which were already covered, the real challenge will also be for those who are absolutely new to this reporting requirement. The modalities of actual filling and filing of BRSR is yet to be addressed. Looking at the cartload of details, the same surely poses a challenge for companies to quantify and qualify its data to suit the reporting format.