The Shifting Terrain of ESG Reporting

From Voluntary to Mandatory Reporting

Historically, ESG (Environmental, Social, and Governance) reporting in India has been voluntary, with companies choosing how much information to disclose about their sustainability practices.

The introduction of the Business Responsibility and Sustainability Reporting (BRSR) framework in 2021 is transforming the landscape. Rooted in the National Guidelines for Responsible Business Conduct (NGRBC), the BRSR framework mandated standardized ESG reporting, integrating global standards with local elements to meet international requirements.

BRSR Core framework, launched in 2023, further expanded its scope to cover direct environmental impacts and broader effects across companies' value chains. This update reflects a commitment to a comprehensive and holistic approach to sustainability reporting, aligning with the interconnected nature of modern business operations.

?Current Landscape and Challenges

Despite over a decade of ESG reporting initiatives, a substantial gap remains in the preparedness of Indian companies for full ESG compliance. Surveys indicate that less than a third of Indian companies feel fully equipped to meet the requirements of the BRSR framework.

One of the notable shortcomings of the BRSR framework is its lack of sector specificity. The sustainability practices and impacts of companies in different sectors can vary significantly. For instance, the criteria for evaluating the sustainability practices of energy-intensive sectors such as mining, oil, and gas are vastly different from those applicable to consumer goods companies or financial services firms.

Tailoring the BRSR standards to cater to the distinct environmental and social footprints of these diverse sectors would significantly improve the precision and utility of sustainability reports. It would allow for a more accurate and sector-appropriate understanding of corporate sustainability performance. However, this sector-specific approach introduces its own set of challenges. The primary concern is the balance between providing enough detail to be useful and avoiding overly complex reporting requirements that could obscure key sustainability outcomes.

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Hybrid Reporting Framework

A more effective approach to address the sector-specific gaps is the adoption of a hybrid reporting framework. This framework merges fundamental universal metrics with modules tailored to specific sectors.

Core Metrics: These would cover fundamental ESG aspects that are applicable across all industries, ensuring a baseline of comparability and consistency. Such metrics might include general environmental impacts, governance practices, and social responsibility indicators.

Sector-Specific Modules: Customizable modules designed for specific sectors would delve into the nuances and unique challenges of each industry. For example, energy consumption metrics would be tailored for energy-intensive industries, while waste management practices might be more relevant for manufacturing sectors.

Implementing this hybrid framework effectively demands an alliance between regulatory bodies, industry coalitions, and sustainability experts. This collaboration would be crucial in identifying both the universal metrics and the critical sector-specific details that need to be included in the reporting framework.

The use of digital reporting platforms that leverage advanced analytics and artificial intelligence could further streamline this hybrid approach. These platforms would enable dynamic updates and adjustments to reflect emerging sustainability trends and regulatory changes, making the reporting process more agile and responsive.

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?Focus on MSMEs

To bolster sustainability reporting across the broader spectrum of Indian companies, particularly Micro, Small, and Medium Enterprises (MSMEs), there is a need for a more accessible version of the BRSR framework. Given the hurdles inherent to compliance for smaller enterprises, the revised framework should emphasize key sustainability indicators tailored for MSMEs' limited resources and simpler reporting needs.

These indicators might include simpler metrics related to energy efficiency, waste management, and social impact, tailored to the operational realities of smaller entities. Simplifying the reporting process for MSMEs will not only enhance their ability to comply but also ensure that sustainability practices are adopted more widely across the economic spectrum.

While challenges remain, particularly in sector-specific reporting and MSME compliance, a hybrid reporting framework and collaborative efforts can enhance the precision, utility, and accessibility of sustainability reports. This strategic shift will better align Indian companies with global standards and promote more meaningful sustainability practices across diverse sectors, fostering a more transparent and responsible business environment.