The Ministry of Corporate Affairs’ recent move to revise the National Voluntary Guidelines (NVGs) on Social, Environmental and Economic, Responsibilities of Businesses is encouraging. To strengthen India’s business responsibility framework, the revised draft NVGs document included a corresponding Business Responsibility Framework (BRR 2.0). Based on the 2011 NVGs, the Securities and Exchange Board of India (SEBI) mandated the top 500 companies to furnish Business Responsibility Reports (BRRs) as part of their listing agreements. BRR is a key source of information for non-financial disclosures of companies listed on BSE and NSE. This post analyses the key changes between BRR and draft BRR 2.0.
BRR 2.0: Deliberative Transformational Shift
The BRR 2.0 is a comprehensive framework that asks for both qualitative and quantitative data from companies on their ESG (Environmental, Social and Governance) related disclosures. Reflecting the pivotal nature of BRR 2.0, the key changes between the two frameworks are detailed below:
Extending the ambit of corporate disclosure
In comparison to the present reporting framework, the draft BRR 2.0 is much more exhaustive and detailed. It includes a detailed questionnaire, which sub-divides the over-arching umbrella questions into sub-elements. Given the holistic nature of the framework, the questions are meant to elicit standardized responses especially in comparison to the present BRR.
The list of questions corresponding to Principle 1 of the National Guidelines is used herein to elucidate this point. The present SEBI mandated version has only two questions corresponding to this principle – one, coverage of the company policy relating to ethics, bribery and corruption, and, second, number of stakeholder complaints. The BRR 2.0, while taking both these questions into consideration, has additional questions and sub-questions, such as cases of corruption registered against the company and number of dialogues that it had with minority shareholders. It also had questions related to percentage of the leadership team, suppliers and distributors who are covered by awareness programmes on the Guidelines, and whether suppliers and distributors had sustainable business policies.
Leadership indicators - giving due recognition to frontrunners
With the introduction of the 'Essential' and 'Leadership' questions, BRR 2.0 not only provides an opportunity for businesses to showcase their good practices, but also fosters a sense of competition among companies towards building a drive for responsible business.
The ‘Leadership Indicators’, in the form of detailed and precise questions, are present across all nine principles. It enables any socially and environmentally responsible company to highlight their strategies and accomplishments against any of the specific principles. To exemplify, the Leadership question corresponding to Principle 6, entails questions such as the categories of employees supported by affirmative action, formation of any standing platform/association for non-permanent employees (and the percentage of employees linked to the platforms), which are completely missing in the present format.
Establishing where the buck stops
An important aspect of the BRR 2.0 relates to how the draft National Guidelines has explicitly defined the responsibilities of the Governance Structure, specifically in relation to a number of questions within the BRR 2.0. The Governance Structure has been defined as ‘Board’ in the case of companies, owner(s)/partner(s) in other forms. This can be important in ensuring that responsible business strategies do not remain at the periphery but become central to the core business policies. For example, in Principle 7 the first Essential Indicators is ‘Has the governance structure reviewed its public policy advocacy positions for consistency with Principles of these Guidelines? If yes, provide up to 3 examples.’
Prioritizing social welfare
Probably, the most exciting feature of BRR 2.0, as compared to its present framework, is the priority that it has shown towards the social responsibilities of businesses. The BRR 2.0 framework has a number of questions giving precedence to a companies’ value chain. The framework has also delved deeper into issues related to child labour and forced/bonded labour, occupational health and safety of workers, work-life balance and fair living wages. Furthermore, it has focussed upon social impact assessments, in addition to environmental impact assessment, to study the impact of its business’ activities on social environment.
Not A Complete Annihilation Of Challenges
In 2017, cKinetics and Oxfam India published the report- Drops before the rain?, which presented the landscape of Sustainable and Responsible Investing (SRI) in India. This report highlighted that the biggest challenge in India, among others, is the absence of complete and accurate ESG information, and standardization for reviewing the data.
Though the BRR 2.0 framework is much more robust in terms of number of questions and specificity of information required, unfortunately, many of the questions in the draft framework is still very qualitative, with room for arbitrariness. This makes comparison between companies difficult.
Steering The Course For Corporate India
As the need for ESG related information becomes more relevant, corporates can no longer afford to be complacent. The role of businesses in impacting the environment and social issues is now recognized, and private sector needs to go beyond routine business towards bringing equitable and sustainable growth.
With a sizable global SRI asset to the tune of $ 22.89 Trillion and SRI assets deployed in India around $ 30.21 Billion, Indian companies are facing serious demands by regulators, investors and customers to be transparent in their ESG factors. Though SRI market is still niche in India, investors are now progressively looking at India from an ESG lens. It is therefore paramount that ESG related information is adequate, comparable and factual.
While the BRR 2.0 framework is a step in the right direction its success and failure depends on how all stakeholders adopt it. Without the right intent it might become just another “re-arrangement of the deck chairs within the Titanic". Used in the right way, BRR 2.0 with its in-depth questionnaire has the potential to capture standardized and comprehensive responses, which might help strengthen the depth and consistency in ESG related information. The framework limits the scope of companies using it as a tick box exercise, and companies would be able to consider it as an opportunity to align their core strategies to the principles enshrined in the National Guidelines. Seen in this way BRR 2.0 can strengthen corporate transparency and accountability, while helping steer the course of the mighty Titanic itself!