Non-Financial disclosures to dig deep into sustainable corporate practices

Experts have called some of these steps "pathbreaking" towards improving transparency in non-financial reporting which under new norms will become as exhaustive as financial reporting

Public policy that a company advocates, methods resorted for such advocacy, details of fines, penalties, compounding fees and remuneration of male and female board of directors and key managerial personnel are among a long list of disclosures corporate India would need to make under the new format of the Business Responsibility Reporting (BRR). 

Experts have called some of these steps “pathbreaking” towards bringing greater transparency in non-financial reporting which under new norms will become as exhaustive as financial reporting. 

The reporting format has increased almost three times from around a dozen pages in the earlier version with a clear focus on sustainability that is aligned with the sustainable development goals.

“The proposed format now offers qualitative as well as quantitative assessment with new dimensions getting added to non-financial reporting. In the short run, the compliance burden may increase but ultimately the benefits from this reporting will be more than offsetting the cost,” Sanjeev Singhal – Partner, SR Batliboi and Co LLP said.

Experts believe that if the reporting standards are followed, companies would have increased access to capital, lesser financial risks, retain talent as well as obtain social license to operate.  

In 2012, Sebi had mandated the top 100 listed entities by market capitalization to file BRRs from an environmental, social and governance perspective.This was extended to top 500 companies in FY 2015-16 and further extended to top 1000 companies in December, 2019.

The Corporate Affairs ministry will work closely with Sebi for the implementation of the new proposed format which will be extended to unlisted companies as well in a gradual and phased manner.

For unlisted and other public companies until now followed the National Guidelines on Responsible Business Conduct (NGRBC) released in March 2019 on a voluntary basis. 

The committee on BRR headed by Gyaneshwar Kumar Singh, Joint Secretary has suggested that the sustainability reporting be integrated with the MCA21 portal and the information captured through the filings be used to develop a Business Responsibility-Sustainability Index for companies.

However, some analysts feel that the proposed format requires too many disclosures and is too comprehensive to implement. “Many companies might delist to avoid making so many disclosures...Even the ‘Lite version’ of reporting is quite heavy,” a senior analyst said. 

The committee has recommended two separate formats - comprehensive and Lite, recommended to be used by large and small size companies which may be defined later. 

The current BRR, experts say is highly theoretical and the new reporting system is highly data driven which has made the process much more objective. 

“The new framework has recognized value chain, labour welfare and women’s participation in economic activities as key pillars for inclusive development and are within the influence of companies,” Arvind Sharma, Partner at Shardul Amarchand Mangaldas & Co said.

One of the nine principles of the BRR include that businesses should promote inclusive growth and equitable development. This requires companies to share details of social impact assessment studies, rehabilitation and resettlement and mechanisms to receive and redress grievances of the community. 

Companies will also have to provide information on CSR  projects undertaken by them in designated aspirational districts as identified by government bodies.

Companies also have to provide details of numbers of employees broken down by gender, disability, contract or casual status among other things. “Disclosures may also be sought on initiatives taken by companies to address the gender gap.” 

Some of the questions raised for companies include: Do you have a preferential procurement policy? From which marginal or vulnerable groups do you procure? What percentage of total procurement - by value does it constitute? 

“The reporting will require detailed information and companies will need to put more robust systems and processes in place to provide detailed and granular information that may be needed,” Madhu Sudan Kankani, Partner, Deloitte India said. 

Countries such as Denmark, South Africa, China, EU, Philippines and Malaysia have rules around sustainable reporting. The Stock Exchange Bursa Malaysia made sustainability disclosure a listing requirement for all listed firms starting from the financial year ending December 2007. The European Green Deal stresses improving transparency and embedding sustainability into the corporate governance framework. 

The Committee to reformat BRR included representatives from MCA, Sebi, three professional institutes, and two professionals who had worked on developing the NGRBCs.

Nine principles for performance disclosures: 

• Ethical, Transparent and Accountable conduct
• Provide goods and services in sustainable and safe way
• Promote the well-being of all employees including those in value chain
• Respect the interests of all shareholders
• Promote human rights
• Protect and restore the environment
• Transparent engagement in public policy
• Inclusive growth and equitable development
• Provide value to their consumers responsibly