Effective the current financial year, the Top 250 listed companies in India, are mandated to submit the ESG (Environmental, Social and Governance) disclosures for their value chain partners, along with limited assurance as per the BRSR Core.[1] With a view towards simplifying the process, SEBI has invited comments through a Consultation Paper[2] which factors the recommendations of an Expert Committee (EC/Committee)[3]. The recommendations are:
- to re-define value-chain partners and implement “Voluntary” disclosure approach in place of a comply-or-explain basis;
- introduce “Green Credits” as a leadership indicator in BRSR Reporting;
- replace the term “Assurance” with “Assessment”.
Here’s a summary of the proposals and reasons behind the suggestions:
Value Chain
Recommendation: Presently, value chain comprises upstream and downstream partners of a listed entity, cumulatively comprising 75% of its purchases / sales (by value) respectively.[4] The EC recommends[5]: (i) Re-definition of value chain to include upstream and downstream partners of a listed entity, individually comprising 2% or more of the listed entity’s purchases / sales (by value) respectively. (ii) Additionally, for the first year of reporting ESG disclosures on the value chain (FY 2024-25), reporting previous year’s numbers will be voluntary. (iii) The listed company must disclose what percentage of its total sales and purchases involve the value chain partners for which it provides ESG disclosures.
Rationale[6]: (i) The Committee recognised that including a large set of value chain partners might unintentionally harm small businesses by adding costs and making it harder for them to comply. The proposed change will decrease the maximum number of potential upstream/downstream value chain partners from 50 (with a 2% threshold) to 38 (with a 2% threshold and a 75% cutoff). This makes doing business easier while still covering key value chain partners. (ii) Keeping in mind the time that the value chain partners will require to establish processes and controls for gathering the required data for the ESG disclosures, they may get an option to report previous year numbers voluntarily for the first year of reporting (FY 2024-25).
Upstream Partners include:
Suppliers of raw materials; Supply side logistic partner; Supplies from contract manufacturers or job worker; Service Suppliers
Downstream Partners include:
Customers (Dealers/Distributors); Downstream transporter and distributor (freight); Downstream leased assets etc.
Green Credit Program
On February 22, 2024[7], the Ministry of Environment, Forest and Climate Change (MoEFCC) announced the methodology for calculating green credits for tree plantation under the Green Credit Rules, 2023, which were introduced on October 12, 2023[8]. These Rules aim at encouraging companies to adopt environmentally sustainable practices and behaviour. The 2024 notification clarified that the green credits generated through tree plantation can be utilized for reporting purposes related to environmental, social, and governance (ESG) leadership indicators, or for corporate social responsibility as per the relevant regulations in force.
Recommendations[9]: In view of the above, it is proposed that the following disclosure may be added as a leadership indicator under Principle 6 of BRSR, i.e. “Business should respect and make efforts to protect and restore the environment”.
Rationale:[10] Incorporating this provision into the BRSR framework will motivate listed entities and their value chain partners to engage in the generation of green credits through environmentally sustainable activities. This inclusion aims to foster a proactive approach towards sustainability within the corporate sector.
Substituting the term “Assurance” with “Assessment”
Presently, listed entities are mandatorily required to undertake ‘reasonable assurance’ of the BRSR Core, as per the glide path and ‘limited assurance’ for ESG disclosures for value chain from FY 2025 – 26.[11]
Recommendations:[12] It has been proposed to substitute the term “Assurance” with “Assessment”. Therefore, instead of the current requirement for ‘reasonable assurance’ of BRSR Core and ‘limited assurance’ for ESG disclosures for the value chain, listed entities will need to conduct an ‘assessment’ according to standards specified by the Industry Standards Forum (ISF) in consultation with SEBI. As per the recommendation, the compliance requirement may stand as below:
Disclosures for FY 2023-24: Since Top-150 companies may already be in an advanced stage of their current engagements on ‘reasonable assurance’, companies shall be provided with an option either to undertake ‘assessment’ or ‘reasonable assurance’ of BRSR Core disclosures for FY 2023-24.
Disclosures for FY 2024-25 and onwards: The terms ‘reasonable assurance’ and ‘limited assurance’ will be replaced with ‘Assessment’. There shall not be any other change with regard to the mandatory nature of BRSR Core or voluntary nature of ESG disclosures of value chain, entities covered, timelines for disclosure/ assessment, etc. (except the changes suggested in other recommendations such as coverage of value chain partners).
Rationale:[13] “Assurance” processes are based on diverse global/domestic standards that often include requirements beyond simple data verification, leading to cost burden and other challenges for corporates. To simplify compliance and reduce the risk of greenwashing, alternatives to ‘assurance’ could be explored for third-party assessment of BRSR core data. The Industry Standards Forum (ISF), in partnership with SEBI, will develop “assessment” standards that align with regulatory objectives. It should be noted that listed entities may continue to voluntarily undergo assurance based on global or domestic standards to meet the expectations of their stakeholders.
Stay tuned to our Linkedin page for updates on the progress and outcome of these proposals as they transition into law.
To know more on BRSR:
– 𝑪𝒉𝒆𝒄𝒌 𝒐𝒖𝒕 𝒐𝒖𝒓 latest 𝒃𝒍𝒐𝒈 𝒑𝒐𝒔𝒕: BRSR and Beyond: Fostering Inclusive Impact across an Organisation’s Value Chain: https://lexplosion.in/brsr-and-beyond-fostering-inclusive-impact-across-an-organizations-entire-value-chain/
– 𝑪𝒉𝒆𝒄𝒌 𝒐𝒖𝒕 𝒐𝒖𝒓 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒃𝒍𝒐𝒈 𝒑𝒐𝒔𝒕 𝒐𝒏 𝑩𝑹𝑺𝑹: https://lexplosion.in/brsr-raises-the-bar-for-esg-disclosures-in-india/
– 𝑾𝒂𝒕𝒄𝒉 𝒐𝒖𝒓 𝒘𝒆𝒃𝒊𝒏𝒂𝒓 𝒐𝒏 𝑩𝒖𝒔𝒊𝒏𝒆𝒔𝒔 𝑹𝒆𝒔𝒑𝒐𝒏𝒔𝒊𝒃𝒊𝒍𝒊𝒕𝒚 𝒂𝒏𝒅 𝑺𝒖𝒔𝒕𝒂𝒊𝒏𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝑹𝒆𝒑𝒐𝒓𝒕𝒊𝒏𝒈: The Future of Environmental, Social and Governance Compliances in India: https://lexplosion.in/knowledge-centre/lexplosion-webinars/business-responsibility-and-sustainability-report-the-future-of-environmental-social-and-governance-compliances-in-india/
[1] Para 4.4 of the BRSR Core – Framework for assurance and ESG disclosures for value chain [Circular No.: SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122, dt. 12.07.2023]
[2] Consultation Paper on the Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to Business Responsibility and Sustainability Report (BRSR) dt. 22.05.2024
[3] Pursuant to the Budget Announcement, an Expert Committee chaired by Shri S.K. Mohanty, ex-Whole Time Member, SEBI was set up to inter-alia review the LODR and ICDR Regulations from the point of view of facilitating ease of doing business. [Ref: Para 3 of the Consultation Paper]
[4] Para 4.1 of the BRSR Core – Framework for assurance and ESG disclosures for value chain [Circular No.: SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122, dt. 12.07.2023]
[5] Para 1.3 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
[6] Para 1.4 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
[7] MoEFCC notification on Tree plantation under the Green Credit Rules: http://www.indiaenvironmentportal.org.in/files/file/notifcation%20on%20green%20credit.pdf
[8] Green Credit Rules, 2023: https://egazette.gov.in/WriteReadData/2023/249377.pdf
[9] Para 2.3 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
[10] Para 2.4 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
[11] Para 3.4.2 and 4.4.2 of the BRSR Core – Framework for assurance and ESG disclosures for value chain [Circular No.: SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122, dt. 12.07.2023]
[12] Para 3.2 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
[13] Para 3.3 Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR
Written by: Baishali Chakraborty
Co-authored by: Antara Dasgupta
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