Reporting standard for ESG disclosures
Currently, there is no single, global reporting standard for ESG disclosures. The most widely adopted ESG frameworks in the world are the sustainability standards published by the Global Reporting Initiative (GRI), an international non-governmental Organisation founded in 1997. Other widely adopted standards include those published by the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Disclosures (TFCD). Many prominent international investors are known to adopt more than one or a combination of these standards.
Despite their widespread adoption, there are key differences between these reporting standards. For example, the GRI standards are stakeholder-focused and require very detailed disclosures, while the standards published by the TFCD focus on climate change risks and are applicable to financial companies only. The SASB’s standards apply to all companies, but unlike the GRI standards, they limit disclosure to ‘financially material’ issues only.
In an effort to create a unified, global standard, the GRI, SASB, CDP and the Integrated Reporting and Climate Disclosure Standards Board have announced their intention to unify their respective standards. This was followed by a similar announcement by the Big 4 accounting firms. Finally, in November 2021, the IFRS Foundation announced the creation of the International Sustainability Standards Board, which aims to publish a unified set of global ESG reporting standards.
GRI, also known as the Global Reporting Initiative, is an international independent organization that produces standards for sustainability reporting. The standards are intended to help organizations report sustainably on their economic, environmental and social performance.
The GRI Standards are the most widely-utilized and trusted frameworks for sustainability reporting. By providing a universal language for sustainability reporting, companies can benchmark their progress and communicate their efforts effectively. Moreover, by gaining a better understanding of both positive and negative outcomes, businesses can manage and disclose their impact, thereby enhancing stakeholder relationships, identifying business opportunities, and reducing potential risks.
GRI’s reporting structure consists of three parts:
The Standards, the Sector Supplements and the Support packages. The Standards provide guidance on how best to measure and disclose the impact of a business’s activities and those of its supply chain. GRI’s Sector Supplements are tailored solutions for specific industries such as energy or healthcare sectors; these include sector-specific guidance on what needs to be reported, formatting principles etc. Finally, Support Packages are developed in collaboration with industry experts to assist reporters in meeting the requirements of the reporting standards.
GRI Standard Module
The GRI Standards are divided into a set of modules that can be used together. The three core modules, known as the GRI’s 100 series, are the Universal Standards that can be applied to any business preparing its sustainability report.
These include GRI Standards 101: Foundation,
GRI Standards 102: General Disclosures, and
GRI Standards 103: Management Approach.
The Topic Standards are organized into three series that help businesses report specific disclosures for each material topic.
These include GRI 200: Economic Topics,
GRI 300: Environmental Topics, and
GRI 400: Social Topics.
GRI Reporting Process
There are 5 Steps in GRI Reporting Process
Step 1: Set Priorities and Strategy development.
Step 2: Building the Structure and Gather Data.
Step 3: Develop Content.
Step 4: Finalize and Communicate.
Step 5: Review Learnings and Iterate.
The Global Reporting Initiative (GRI) offers thirty environmental performance indicators that should be used as part of any environmental sustainability report. These performance indicators are divided into nine primary categories: Materials, Energy, Water, Biodiversity, Emissions, Effluents, Waste, Products and Services, Compliance, and Transport.
The Materials category includes raw materials (natural resources, manufactured chemicals, and materials needed for manufacturing) as well as packaging materials and recycled product content. The Energy category covers direct and indirect energy consumption, renewable energy amounts used (such as wind, solar, and geothermal), and efforts made to reduce energy requirements through more energy efficient processes. The Water category includes the total amount of water withdrawn from water sources and company impact on those water sources, as well as the percentage and total volume of water that is recycled or reused.
The Biodiversity category provides information regarding company impact on the biodiversity of adjacent/nearby protected areas and/or areas considered to have high biodiversity, as well as company strategies for managing impacts on biodiversity. The Emissions, Effluents, Waste category includes the total weight of direct and indirect emission of GHGs, ozone-depleting emissions, and NOx, SOx, and other air emissions by type; total water discharge by quality and destination; total weight of waste generated by type and disposal method; total weight of treated, transported, or imported hazardous waste either as well as the percentage of waste shipped internationally; total volume and number of spills on and off-site.
The Products and Services category provides the percentage of products sold and packaging materials that are reclaimed/recycled. The Compliance category provides the total monetary value of noncompliance fines and number of noncompliance sanctions. The Transport category describes the impact of transporting materials and finished products. Finally, the Overall category provides the total values of environmental protection expenses and investments.
The BRSR framework for Listed Companies in India
Beginning in the financial year 2022-2023, the top 1,000 listed companies in India (by market capitalization) will be required to include a ‘Business Responsibility and Sustainability Report’ ( “BRSR”) in their annual report. This report will be notified to the stock exchanges, published on the company’s official website, and separately provided to shareholders.
Prior to the BRSR becoming mandatory, the top 1,000 listed companies in India (by market capitalization) were only required to publish a relatively shorter ‘Business Responsibility Report’ (or “BRR”). Both the BRSR and the BRR were based on the nine business sustainability principles identified by the Ministry of Corporate Affairs in their voluntary ESG guidelines published in 2011 (“MCA ESG Guidelines”). However, the BRR was not well-received due to its lack of meaningful ESG data, as it was based almost entirely on the nine sustainability principles from the MCA ESG Guidelines (often, as a Y/N questionnaire).
In contrast, the BRSR builds upon the framework of the MCA ESG Guidelines, draws inspiration from international reporting frameworks such as the GRI standards, and provides for detailed qualitative and quantitative ESG data.
Requirements for other ESG disclosures
As indicated above, the BRSR framework is not mandatory for smaller listed companies and unlisted public or private companies in India. However, these companies can still voluntarily adopt the BRSR framework, and may find that the potential investment or other benefits outweigh the reporting costs.
Outside of the BRSR framework, there are very few mandatory ESG disclosure requirements in India. These include, for example, disclosures regarding energy conservation in the annual reports of Indian companies and statements in board reports regarding compliance with laws prohibiting harassment.
At present, ESG reporting is mainly a priority for large-listed companies. However, smaller companies, particularly those seeking private investments from VC or PE funds, should also start considering their ESG risks and opportunities. In fact, India’s banking regulator, the Reserve Bank of India, is reportedly looking at issuing ESG-based lending guidelines.
To begin with, smaller companies should look to strengthen their compliance protocols for the various laws that apply to their business and involve ESG issues. As a starting point, these companies can refer to the MCA ESG Guidelines, which have identified thirty-seven important laws in India that are relevant for business sustainability. To further improve their ESG scores, smaller companies can adopt specific KPIs from the BRSR (if not the entire BRSR), consider KPIs from other, more specialised reporting frameworks – such as the B Impact Assessment, Future-Fit Business Benchmark and the Impact Reporting and Investment Standards – and consider adopting the ISO 26000 standard, which provides guidance on social responsibility. By taking these steps, smaller companies can ensure that they are well-positioned to meet the increasing demand for ESG reporting and disclosure.