Getting ready to implement BRSR from FY 2022-23 (Part-II)

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Having dealt with the detailed actionable required under each of the NGRBC principles, in our article Getting ready to implement BRSR from FY 2022-23 (Part-I), in this article, we aim at guiding the management at “how” the reporting entity needs to prepare itself for the successful BRSR implementation.

While a company prepares itself for principle-wise disclosures, the general, management and process disclosures are also very significant in terms of providing an overview of the entity’s take on ESG and sustainability.

Section A: General disclosures

This part deals with the basic details of the reporting entity, the products and services it provides, locations and markets it operates in, types of customers it serves, details of employees, board and KMP and the group structure. Part VII of this Section is of much relevance and attracts some preparatory actions on part of the reporting company.

Grievance Redressal Mechanism

Clause 23 of Part VII of Section A requires disclosure on the complaints/ grievances received on any of the nine principles on which the BRSR is based. It requires a company to –

Identification of the stakeholder group

BRSR requires identification of the stakeholder group since the company is required to report on the complaints received by them. While the  format lists out some stakeholder groups such as community, investors (other than shareholders), shareholders, employees and workers, customers and value chain partners, it is an inclusive list and retains scope for identification and inclusion of other stakeholder groups. The term “stakeholder” has been defined in the Guidance Note as –

Stakeholders are individuals or groups concerned or interested with or impacted by the activities of the businesses and vice-versa, now or in the future. Typically, stakeholders of a business include, but are not limited to, its investors, shareholders, employees and workers (and their families), customers, communities, value chain members and other business partners, regulators, civil society actors, and media.

Therefore, any individual or group impacted or having the potential to be impacted by the operations of the entity at any point in time may be identified as the stakeholder group for the company. This includes government, regulators, media, NGOs, public trusts and charitable societies, apart from the direct stakeholders listed in the format itself.‘impact’ refers to the effect an organization has on the economy, the environment, and/or society, which in turn can indicate its contribution (positive or negative) to sustainable development.[1]

Identification of stakeholders is particularly relevant for P4 which requires business to respect the interests of and be responsive to all stakeholders.

Meaning of community

The term community has not been defined in the Guidance Note as well as NGRBC principles. The GRI Standards Glossary defines local community to mean “persons or groups of persons living and/or working in any areas that are economically, socially or environmentally impacted (positively or negatively) by an organization’s operations.” In the context of a listed entity, people from all around the country, as well as other parts of the world where the entity operates, or receives investments from, will be included in the meaning of community and construed likewise.

Meaning of Value Chain Partner (VCP)

[1] GRI Standards Glossary – (Page 12)

As specified in the Guidance Note –

An organization’s value chain encompasses the full range of an organization’s upstream and downstream activities that convert input into output by adding value. It includes entities with which the organization has a direct or indirect business relationship and which either –

(a) supply products or services that contribute to the organization’s own products or services, or

(b)receive products or services from the organization.

Therefore, addition of value is important for identifying an entity as a value chain partner. For example, in the case of a car manufacturing entity, the suppliers of raw materials such as steel, aluminium etc are value chain partners. Similarly, the supplier of related material such as fuel for cars, may also be identified as a VCP, considering they have a role in adding value for the ultimate user. Products manufactured by the reporting entity may further be re-processed (R1 and R2) by the recipients or be sold as such. In case no further value is added before selling it to the end user, such downstream recipient (R3) cannot be identified as a VCP.

The reference to VCP can be found under P1 (ethics, integrity and transparency), P3 (employee well-being) and P5 (human rights).

Features of grievance redressal mechanism

The NGRBC defines grievance redressal mechanism to mean, “Mechanism for any stakeholder individually or collectively to raise and resolve reasonable concerns affecting them without impeding access to other judicial or administrative remedies.”

BRSR requires reporting of grievance redressal mechanisms in respect of employees (P3), human rights concerns (P5) and community (P8).

The objective of providing a grievance redressal mechanism  serves various purpose:

  • to expedite the legal actions that may be taken against the wrongdoings of the reporting entity,
  • to provide an opportunity to the company to be informed, understand and address the grievances of the stakeholders and take remedial action for the same.
  • Lay down measures to protect the complainant against any harassment etc

Features of effective grievance redressal mechanism –

Overview of the entity’s material responsible business conduct issues

This is yet another significant clause of reporting. The reporting entity is required to indicate the material responsible business conduct of the entity, and sustainability issues pertaining to the social and environmental matters that present a risk or an opportunity to the business of the entity. In order to report on this clause, the reporting entity needs to have a well-defined system in place. It involves the following –

Section B: Management and process disclosures

For the purpose of proper implementation of BRSR, one needs to know what is to be done, how the same has to be done and who is the ultimate authority to be reported to. Therefore, this Section aims at setting out goals and objectives, formulating policies on how the same should be achieved and converting the same into procedures, performance on stated goals and review by relevant responsible authorities. Furthermore, the performance against goals needs to be evaluated independently, and based on the “maker-checker” concept, it is always advisable to get the same evaluated by an external agency.

Governance of BRSR implementation

Implementing BRSR requires a comprehensive approach starting from setting up of goals and ending with review of corrective actions taken based on the assessment. While it is the call of the reporting entity to decide the governance outlook of BRSR, given below is an indicative governance structure for BRSR –

Please note that the above is, but only an indicative structure towards the BRSR governance. Companies may, on the basis of their size and nature, adopt different governance structures towards BRSR implementation and supervision.

Guiding Policies and laws relating to each principles

Section C deals with the principle-wise disclosures, dealing with each of the nine principles of NGRBCs. Below, we provide the indicative contents of the policies that a reporting entity may be required to frame and the laws relating to the theme of each of the principles.  Please note that the laws are not generic and their applicability may vary on the basis of the nature of operations of the reporting entity.

Principle 1 – Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable
Policy to be framedBroad contents of the policy
Code of Conduct and Ethics●     Specify the values and ethics of the company
●     of the employees, workers, board and management of the company
●     Define responsibilities of board 
●     Designate authority responsible for governance of ethical conduct and receiving complaints on same
●     Ethical conduct includes respect for stakeholders, equitable
treatment, fair dealings, transparency of information, exercise independent judgement
●     Identification and managing potential of conflicts of interests
Suppliers’ Code of Conduct
Anti-Corruption and Anti-Bribery Policy●     Incidents that amount to corruption
●     Zero retaliation against bribery
●     Legitimate vs prohibited gifts and hospitality
●     Means for reporting instances of corruption and bribery
●     Actions taken against the alleged or accused
Code of Conduct under Insider TradingThe same is a statutory requirement under SEBI (Prohibition of Insider Trading) Regulations, 2011
Whistle blower PolicyStatutory requirement in terms of Section 177 of the Companies Act, 2013 read with Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Laws relevant to the PrinciplesCompliances required to be ensured
The Prevention of Corruption Act, 1988●     Prohibition on payment of gratification to public servant
●     Prohibition on taking gratification for exercise of personal influence
with public servant
Prevention of Money Laundering Act, 2002 (‘PMLA’)●      Identifying principal officer having access to top management for
ensuring compliance with PMLA provisions
●      Maintain record of potentially suspicious transactions as specified in
relevant rules
●      Evolving internal mechanism for proper maintenance and
preservation of records and quick retrieval of data
●      Formulate and review at regular intervals, policies and procedures
on prevention of money-laundering and terrorist financing
The Companies Act, 2013●      Obtaining requisite approvals before entering into Related Party
Transactions
●      Obtaining requisite approvals before entering into contracts/
arrangements in which the director is interested
●      Establishment of vigil mechanism to enable people to report
genuine concerns before audit committee
SEBI (Prohibition of Insider Trading) Regulations, 2011●      Prohibition of trading on the basis of unpublished price sensitive
information
●     Fair disclosure of information by Designated Persons and insiders
Principle 2- Business should provide goods and services in a manner that is sustainable and safe.
Policy to be framedBroad contents of the policy
Responsible Sourcing Policy●      Ensuring sustainable utilization of natural
resources
●      Complying with all applicable regulatory
requirements pertaining to the products and/ or services
●      Identify, assess and incorporate environmental and
social considerations in product/ service development
●      Encourage minimum/ no use of non renewable
natural resources
●      Encourage minimum/ no use of hazardous or toxic
substances
●      Implementation of Extended Producer Responsibility,
wherever possible for buyback of non-degradable components of products
Laws relevant to the PrinciplesCompliances required to be ensured
Environment(Protection) Act, 1986●      Monitoring pollution discharge in excess of
prescribed limits
●    Comply with procedural safeguards in handling of
hazardous substance
Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016●      Ensuring proper treatment and disposal of the
hazardous waste generated in the establishment
●      Holding valid authorisation (application/renewal) for
handling such hazardous and other wastes
●    Maintenance of proper records for hazardous and
other wastes stored
E-waste (Management and
Handling) Rules, 2016[2]		●      Plan for management of the equipment after its end
of life
●     Designing an appropriate collection or product take back system such that it facilitates channelization of EWaste for environmentally sound management
●      Creating awareness about the product offered in
the market
●      Publicize and periodically update the contact
details of the authorized collection centers and
collection points or their collection mechanism
Principle 3 – Businesses should respect and promote the well-being of all employees, including those in their value chains.
Policy to be framedBroad contents of the policy
Employee Rights Policy●      Respect and recognition for employee rights
●      Provision for parental leave
●      Periodic training and skill development
●      Consideration of occupational health and safety of workers and employees
●      Criteria for payment of remuneration Observing practice of non-discrimination and harrasment
Equal Opportunity PolicyStatutory requirement under Section 21 of the Rights of Persons with Disabilities Act, 2016[3]. It broadly covers the manner of appointment, provision of assistance and facilities provided to persons with disability
Prevention of Sexual Harrassment at Workplace PolicyStatutory requirement in terms of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
Laws relevant to the PrinciplesCompliances required to be ensured
Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013●      Constitution of Internal Complaints Committee
●      Rendering assistance to the aggrieved making the complaint
●      Filing a report with the findings of the inquiry and taking necessary action
●      Abiding by the minimum duties of employer as prescribed therein
Public Liability Insurance Act, 1991●      Obtaining insurance policies of specified value before handling any hazardous substances
●      Ensuring timely renewal of the insurance policies taken
●      Make timely payment of the insurance premium
Workmen’s Compensation Act, 1923●      Payment of compensation in case of work related injuries
●      Maintenance of records for settlement of compensation in periodic payments by way of an agreement
Children (Pledging of Labour) Act, 1933●      Prohibition on employment of a child by way of pledge of labour
Industrial Employment (Standing Orders) Act, 1946●      Submission of draft standing orders (related to working conditions)
●      Publication of certified standing order in the industrial
establishment in languages known to workmen
●      Maintenance of register of certified standing orders
●      Payment of subsistence allowance in case of suspension of a workman pending investigation or inquiry
Payment of Wages Act, 1936●      Designate a person responsible for payment of wages
●      Periodic payment wages within stipulated time
●      Monitor that only authorised deductions are made from the wages
●      Maintenance of registers  and records of persons employed, the work performed by them, the wages paid to them, the deductions made from their wages, the receipts given by them and such other particulars
Minimum Wages Act, 1948●      Payment of wages  to every employee engaged in a scheduled employment under him wages at a rate not less than the minimum rate of wages as prescribed
●      Maintenance of  registers and records giving such particulars of employees employed by him, the work performed by them, the wages paid to them, the receipts given by them and such other particulars
Employees Provident Fund and Miscellaneous Provisions Act, 1952●      Contribution of the prescribed amount to the provident fund established
●      Contribution to the Deposit-linked Insurance Fund in pursuance of the Insurance Scheme as applicable
Maternity Benefits Act, 1961●      Payment of maternity benefit at the prescribed rate of average daily wages
●      Prohibition of employment of a woman during the six weeks immediately following the day of her delivery or her miscarriage
●      Prohibition of imposing any work which is of an arduous nature or which involves long hours of standing or which in any way is likely to interfere with the  pregnancy or the normal development of the foetus, or is likely to cause miscarriage or otherwise to adversely affect the health of a woman who has made a request in this regard
Payment of Bonus Act, 1965●      Payment of minimum bonus at the prescribed rate of salary or wage earned by the employee
Contract Labour (Regulation & Abolition) Act, 1970●      Registration of establishment employing contract labour
●      Appointment of representative to be present at the time of
disbursement of wages by the contractor
●      Display of notices in the prescribed form containing particulars
about the hours of work, nature of duty and such other information
Payment of Gratuity Act,1972●      Payment of gratuity at the prescribed rate of wages based on the
wages last drawn by the employee
●      Obtaining insurance in the manner prescribed, for his liability for
payment towards the gratuity under the Act
Bonded Labour System (Abolition) Act, 1976●      Prohibition on acceptance of any bonded debt from bonded
labourer
Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act,1979●      Prohibition on employment of an inter-State migrant workmen
unless  registration certificate has been established
●      Appointment of representative to be present at the time of
disbursement of wages by the contractor
Child Labour (Prohibition & Regulation) Act, 1986●      Prohibition on employment of child except for some specified
purposes
●      Prohibition on employment of adolescents to hazardous processes
●      Designing working hours and days in compliance with the
requirements under the Act
●      Compliance with rules relating to health and safety in workplace
Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act,1996●      Fixation of working hours in compliance with the provisions
●      Provision for overtime wages
●      Exhibit notice containing particulars of working hours and overtime wages in working areas
●      Prohibition on employment of persons with disabilities in
places that involve risk of accident for him/ her
●      Maintenance of register of workers employed, hours worked, wages paid etc
Rights of Persons with Disabilities Act, 2016●      Prohibition on discrimination on grounds of disability, unless legitimate cause shown
●      Maintenance of records of persons with disabilities employed in the entity
●      Observance of accessibility norms in  the infrastructure of the premises
Principle 4- Businesses should respect the interests of and be responsive to all its stakeholders.
Policy to be framedBroad contents of the policy
Stakeholder Engagement Policy●      Means of identifying stakeholder relevant to the operations and structure of the entity
●      Understanding and addressing genuine concerns of the stakeholders
●      Engaging with the stakeholders in a responsible manner
Laws relevant to the PrinciplesCompliances required to be ensured
Public Liability Insurance Act, 1961Refer under Principle 3
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013●      Preparation of Social Impact Assessment study in consultation with appropriate government
●      Obtaining approvals from Government for proposed land acquisition
●      Providing public notice to enable them to raise objections and/ or register claims
●      Prohibition on acquisition of multi-crop irrigated land except under exceptional circumstances
●      Compliance of conditions specified in the Rehabilitation and Resettlement Award
The Scheduled Castes And The Scheduled Tribes (Prevention Of Atrocities) Act, 1989●      Prohibition on discrimination and harrassment to any person who is a member of Scheduled Caste or Scheduled Tribe
Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013Refer under Principle 3
Principle 5- Businesses should respect and promote human rights
Policy to be framedBroad contents of the policy
Human Rights Policy●      Human rights recognised by the entity[1]
●      Grievance mechanisms for addressing concerns on human rights
●      Consequences of breach of human rights policy
Laws relevant to the PrinciplesCompliances required to be ensured
All laws relating to Principle 3 (Employee well-being) and Principle 4 (Stakeholder Engagement)
Principle 6- Businesses should respect and make efforts to protect and restore the environment
Policy to be framedBroad contents of the policy
Environmental Policy●      Adopting best practices in its operations in an environmentally conducive manner
●      Conduct environmental impact assessment study periodically
●      Maintenance of proper compliance with applicable environmental laws
●      Monitoring use of carbon in operations
●      Minimisation of use of carbon-intensive technology
●      Setting of objectives and goals towards climate change
Laws relevant to the PrinciplesCompliances required to be ensured
Environment(Protection) Act, 1986Refer under Principle 2
Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016
E-waste (Management), Rules, 2016
Public Liability Insurance Act, 1991Refer under Principle 3
Biological Diversity Act 2002●      Prohibition on obtaining biological resource for research or commercial utilisation etc without approval of National Biodiversity Authority (‘Authority’)
●      Restriction on application for Intellectual Property Rights without requisite approvals from Authority
Prior intimation to Authority for use/ research etc on biological resource where prior approval is not required
Wildlife Protection Act, 1972●      Prohibition on hunting of specified wild animals
●      Holding valid permit for hunting of wild animals
●      Prohibition on dealing in specified plants in any manner
●      Holding valid permit for dealing in such plants for purposes such as education, scientific research etc
●      Prohibition on cultivation of specified plants
Water (Prevention and Control of Pollution) Act, 1974●      Restriction on new establishments resulting in new discharge of sewage
●      Access to government officer for periodic assessment of existing sewage and discharge of effluents
Water (Prevention and Control of Pollution) Cess Act, 1977●      Payment of cess for use of water in the operations and industries
Air (Prevention and Control of Pollution) Act, 1981●      Identifying whether any industrial plant is/ proposed to be set up in air pollution control area
●      Obtaining permission before establishment of industrial plant in air pollution control area
●      Prohibition on emission of air pollutant in air pollution control area
National Environment Tribunal Act, 1995●      Liability to pay compensation in case of death of, or injury to, any person (other than a workman) or damage to any property or environment has resulted from an accident as specified in the Schedule thereto
Energy Conservation Act, 2001●      Ensuring that the equipment or appliances that consume, generates, transmits or supply energy is in line with the energy consumption standards
●      Ensure display of specified particulars on the label on such equipment or appliance
●      Get energy audit conducted by the accredited energy auditor
●      Appoint energy manager with such qualification as prescribed
●      Arrange and organise training of personnel and specialists in the techniques for efficient use of energy and its conservation
Principle 7 – Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent
Policy to be framedBroad contents of the policy
Policy on Responsible Advocacy●      Recognise the values and principles advocated by the entity
●      Identify the means of advocacy
●      Adopting a collaborative approach in influencing public
●      Designate authorities responsible to oversee implementation of the Policy
Fair Competition Policy●      Define fair competition vs anti-competition Pledge not to indulge in anti-competitive practices
●      Define fair competition vs anti-competition
●      Pledge not to indulge in anti-competitive practices
●      Consequences upon persons found to be indulged in anti-competitive practices
●      Incidents that amount to abuse of dominant position
Laws relevant to the PrinciplesCompliances required to be ensured
Competition Act, 2002●      Identify whether any contract/ arrangement entered into by the company involves an appreciable adverse impact on the fair competition
●      Obtain appropriate approvals before entering into any combination arrangements
●      Do not indulge in activities that amount to abuse of dominant position or anti-competitive practices
All laws relating to Principle 3 (Employee well-being) and Principle 4 (Stakeholder Engagement)
Principle 8 – Business should promote inclusive growth and equitable development
Policy to be framedBroad contents of the policy
Inclusion & Diversity Policy●      Recognition of diversity in workplace
●      Meaning of inclusion and diversity in the context of the reporting entity
●      Approach of the entity towards ensuring diversity
●      Ways adopted to promote inclusion of diversity in workforce
●      Extent of inclusion and diversity – does it extends to value chain etc
●      Providing accessibility to all in absence of any valid reasons behind restricting the same
Preferential Procurement Policy●      Give preference to small producers, farmers, MSME etc
●      Allocating a percentage of raw materials to be sources from such suppliers
●      Manner and responsibility of persons reviewing actual procurement against budgeted allocation
Corporate Social Responsibility PolicyStatutory requirement under Section 135 of the Companies Act, 2013
Laws relevant to the PrinciplesCompliances required to be ensured
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013Refer under Principle 4
The Scheduled Castes And The Scheduled Tribes (Prevention Of Atrocities) Act, 1989
Public Liability Insurance Act, 1991Refer under Principle 3
Biological Diversity Act 2002Refer under Principle 6
Essential Commodities Act, 1955●      Dealing with essential commodities only with a valid permit from Government
●      Dealing with essential commodities at prices fixed by Government
●      Abstain from withholding supply of essential commodities
The Companies Act, 2013Spending on projects and activities in line with Schedule VII for the benefit of one or more classes of the society 
Principle 9 – Businesses should engage with and provide value to their consumers in a responsible manner
Policy to be framedBroad contents of the policy
Cyber Security and Data Privacy Policy●      Define legitimate use vs misuse of information
●      Ensure proper access and usage of information
●      Prevent misuse of information
●      Maintain confidentiality of personal information of clients, suppliers, consumers and employees
●      Undertaking that any information shared can be done only with prior consent of the concerned
●      Policy for non-retention of personal information beyond specified use
Laws relevant to the PrinciplesCompliances required to be ensured
Consumer Protection Act●      Prohibition of unfair trade practice and/or restrictive trade practice
●      Removal of defect/ replacement of defective goods
●      Abstain/ discontinue offering hazardous goods for sale
●      Payment of adequate compensation against the damage caused due to the products/ services of the entity
Competition Act, 2002Refer under Principle 7
Consumer Protection (E-Commerce) Rules, 2020●      Appointment of nodal officer to ensure compliance with applicable laws and regulations
●      Abstain from adoption of any unfair trade practice
●      Establish and maintain grievance redressal mechanism
●      Abstain from any sort of price manipulation, discrimination among consumers
●      Display of necessary information prominently such as contact details, location, payment modes etc
●      Ensure that all advertisements are consistent with the actual characteristics of the products/ services
Food Safety and Standards (Packaging and labelling) Regulations, 2011●      Minimum information required to be specified in the label of pre-packaged products
●      Use of specified types of containers for various pre-packaged products
Recycled Plastics Manufacture and Usage Rules, 1999●      Recycling of plastic products in line with the prescribed standards
●      Abstain from using single-use plastics
●      Appropriate marking/ codification of the plastic products used

Concluding Remarks

It is apparent that the reporting entities need to ensure that a lot of policies, processes and systems are in place in order to demonstrate a positive ESG position. While it seems to be a very rigorous exercise, companies making to the top in the country in respect of their ESG conduct should already be having much of it in place. For them, BRSR will give a way to demonstrate their commitment towards ESG and their responsible business practices. Considering the growing importance given to the adoption of NGRBC principles across the group entities and value chain partners, the impact of implementing BRSR will not fall only on the top 1000 listed entities on which the same is applicable, but extends far beyond the legal scope.

[1] GRI Standards Glossary – (Page 12)

[2] These rules shall apply to every producer, consumer or bulk consumer, collection centre, dismantler and recycler of e-waste involved in the manufacture, sale, purchase and processing of electrical and electronic equipment or components

[3] Rule 6(3) of the Rights of Persons with Disabilities Rules, 2017 specifies the following information to be made part of the Policy –

(3) The equal opportunity policy of a private establishment having twenty or more employees and the Government establishments shall inter alia, contain the following, namely:-

(a) facility and amenity to be provided to the persons with disabilities to enable them to effectively discharge

their duties in the establishment;

(b) list of posts identified suitable for persons with disabilities in the establishment;

(c) the manner of selection of persons with disabilities for various posts, post-recruitment and pre-promotion

training, preference in transfer and posting, special leave, preference in allotment of residential accommodation if any, and other facilities;

(d) provisions for assistive devices, barrier-free accessibility and other provisions for persons with disabilities;

(e) appointment of liaison officer by the establishment to look after the recruitment of persons with disabilities and provisions of facilities and amenities for such employees.

(4) The equal opportunity policy of the private establishment having less than twenty employees shall contain facilities and amenities to be provided to the persons with disabilities to enable them to effectively discharge their duties in the establishment.

[4] Minimum components of human rights should include rights as specified under the Constitution of India, International Bill on Human Rights, United Nations Guiding Principles for Business and Human Rights

Our resource center on Business Responsibility and Sustainable Reporting can be accessed here –

Resource Center on ESG and sustainability

Getting ready to implement BRSR from FY 2022-23 (Part-I)

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  • Team Vinod Kothari & Company, Corporate Law Division (corplaw@vinodkothari.com)

Business Responsibility & Sustainability Reporting (‘BRSR’), which was voluntary as a part of the regulatory provisions for the top 1000 listed entities (by market capitalization) for FY 2021 – 22, is now all set to become mandatory from FY 2022–23 onwards. BRSR is intended to serve as a single focal point for all non-financial disclosures relating to the company that will enable the stakeholders to understand the approach of the company on different issues such as sustainability, responsible business conduct, manner of dealing with stakeholders, etc.  With only a few weeks left for the onset of FY 22-23, it is time for companies to get into immediate action, as there is evidently a lot of work to be done.

Based on the nine principles of National Guidelines on Responsible Business Conduct (‘NGRBCs’), BRSR in the real sense is actually an expanded and improved version to the existing BRR format. Our article on the additional cartload of details in BRSR as compared to BRR had given a firsthand of the additionalities involved in moving to BRSR. Although based on the same principles, BRSR is much more comprehensive as compared to its former counterpart. . Further, it is notable that as one of the universally accepted sustainability standards, Global Reporting Initiative Standards (‘GRI Standards’) can be closely referred for the enhanced requirements under BRSR and therefore, serve as a guidance for reporting under BRSR.

Having understood that the set-up of the overall framework for the reporting requirements under BRSR is likely to be a challenge to the corporates, this article has been prepared to aid in  understanding the additional requirements as well as adopt an appropriate approach for preparing the same. This write up contains an inclusive guidance from the GRI Standards as well as several actionables. We have another comprehensive article dealing with the MCA recommendations on making BRR a fully loaded electronic form.

Interoperability of reporting and sector specific issues:

There are some entities which may have adopted various international sustainability reporting standards such as GRI, SASB, Integrated Reporting etc. To avoid repetition of information, SEBI vide its Guidance note has clarified that the reporting entities may provide a cross-referencing of the disclosures made by it based on the internationally accepted framework while making the relevant disclosures under the BRSR format. Also, for that matter if the required information has been disclosed in the annual report, cross reference to the same can also be provided. 

Further, there might be disclosures under the BRSR format which are irrelevant for companies operating under specific sectors. In order to address such issues, it has been clarified by SEBI that the format of BRSR is generic and hence it is absolutely possible that some of the disclosures provided in the BRSR format may not be relevant to an entity belonging to a particular sector. In such a case, the entity may mention that the disclosure is not applicable along-with reasons for the same.

Guiding through the principle-wise disclosures

BRSR is a notable extension of BRR which provides not just for quantitative but also qualitative disclosures. The disclosure requirements under BRSR and its format is expected to bring in more standardization which in turn will help in effective comparability across companies.

Further, the disclosures provided under BRSR bear a close resemblance to the GRI standards and hence, the guidance for reporting under various criteria provided in the BRSR format can be taken from the relevant GRI standards as and when required.

The principle-wise guidance from GRI and additional actionable involved under BRSR are discussed below:

Principle 1: Business conduct to be ethical, transparent and accountable

Owing to heightened scrutiny from investors regarding corporate governance practices in an organization, it is imperative that business houses conduct their operations in a transparent manner and redress grievances of stakeholders, if any. The first principle under the BRSR reporting regime is based on the above premise and requires companies to report on such practices.

Actionable involved under BRSR
Training and awareness programmes
1. Conducting training and awareness programmes for directors/KMPs/employees/workers ( ‘Participants’)
●      Reviewing the manner for imparting training to each category of the Participant.
●      Identification of codes and policies to be framed or updated for training purposes.
Penalties and Fines
2. Providing details of fines / penalties /punishment/ award/ compounding fees/ settlement amount paid in proceedings by the entity or by directors / KMPs in the financial year.
3. Providing details of appeal/ revision preferred in cases where monetary or non-monetary action has been appealed
●      Identification of laws under which the fine/ penalty/ awarded/ compounding fees etc. are to be considered under point (2)
●      Fixation of thumb rule for ascertaining the specific cases under the above which requires reporting in terms of being material under Regulation 30 of the Listing Regulations.
Framework for Anti-Bribery Cases (‘ABC’)
4. Forming an anti-corruption/anti-bribery policy. The disclosure on the anti-corruption or anti-bribery policy may include the following:
●       Set -up or review of the risk assessment procedures and internal controls
■       Mechanism to deal with complaints on bribery / corruption
■      Coverage of trainings on anti-corruption issues
●      Providing details of number of Directors/KMPs/employees/workers against whom disciplinary action was taken by any law enforcement agency for the charges of bribery/ corruption.
■      Bifurcation of the roles and responsibility of the officers of the company in case of identification and dealing with ABC
Conflicts of Interest
5. Providing details of number of complaints received in relation to issues of Conflict of Interest of the Directors/KMPs
●      Identifying the level of conflict of interest that requires reporting
●      Defining conflict of interest at each reportable level
6. Providing details of any corrective action taken or underway on issues related to fines / penalties / action taken by regulators/ law enforcement agencies/ judicial institutions, on cases of corruption and conflicts of interest
Value Chain Partners (‘VCPs’)
7. Conducting awareness programmes for value chain partners (‘VCPs’) with respect to any of the nine principles.
●      Identifying and defining VCPs
●      Framing policies and framework for efficient communication with them
8. Defining the processes undertaken for managing conflict of interest involving Board members.
Taking guidance from GRI in implementation
1. Description of reporting entity’s values, principles, standards, and norms of behaviour.
2. Training on identified ethics to new and existing governance body, workers and business partners
3. Responsibility of executive-level positions and highest level of governance body.
4. Use of internal and external mechanisms for seeking advice on ethical behaviour and reporting concerns on adverse behaviour.
(i) Availability and accessibility of the mechanisms and independence of same
5. Presence of a non-retaliation policy towards unethical behaviour and corruption.
6. Identifying incidents of corruption – meaning and impact.
7. Procedure and criteria of risk-assessment for corruption and significant risks identified.
8. Business operations that have been assessed for risk of corruption.
9. Extent and stage of training and communication on anti-corruption.
10. Collective action taken to combat corruption like  proactive collaboration with peers, governments and the wider public sector, trade unions and civil society organizations.
11. Designing board structure and employee-incentives in a manner to avoid adverse instances of conflict of interest.

Principle 2: Goods and services to be safe and sustainable

Owing to an increase in demand from consumers for sustainable and safe products, it has become important for companies to incorporate such sustainability practices while designing and manufacturing their products. Principle 2 on BRSR mandates certain disclosure requirements from companies with an aim of ensuring that they are responsive to such requirements.

Actionables involved under BRSR
R&D for  improvement of product-related impact on the environment
1. Apportioning a percentage of the R&D budget and capital expenditure investments towards improving the environmental and social impacts of the company’s products.
●      Categorizing the products of the company with respect to the probable impact to the society and the environment
●      Formulate a policy for measuring and mitigating the negative impact of the company’s products, if any, on the environment and the society at large.
●      Fixation of the budget for R&D including the extent, manner, and other modalities for conducting such R&D (including capex).
Sustainable sourcing of inputs and reclamation of products
2. Sustainable sourcing of inputs for production.
●      Identifying the sustainable sourcing of inputs
●      Segregate the products obtained sustainably and otherwise for the purpose of reporting.
3. Processes undertaken for reclaiming products for reusing, recycling and disposing at the end of life.
●      Identification of the products that require reclamation exercise by the Company
●      Devising the framework for reclaiming products and its management.
●      Quantity of reclaimed products that has been reused, recycled and safely disposed of.
●      Bifurcate the products reclaimed into different pre-formed categories for ease of reporting.
●      Quantity of the products/ packaging material that has been reclaimed as percentage of products sold.
EPR[1]
4. Submission of waste collection plan to the Pollution Control Board if Extended Producer Responsibility (‘EPR”) is applicable to the company.
●      Identify whether EPR is applicable to the reporting entity.
●      Formulation of waste collection plan.
Life Cycle Assessment (‘LCA’)
5. Conducting LCA.
●      Decide the product line as well as level upto which LCA shall be conducted.
6. Social or environmental concerns arising from the production/ disposal of the products.
●      Actions to be taken to address the concerns based on the outcome of assessment conducted in (5).
7. Disclosure of the use of recycled input material used to the total material used in production.
● Setting up the procedures for collecting data from each factory outlet on the quantum of recycled inputs used
Taking guidance from GRI in implementation
1. While compiling the information to be reported, the entity shall use the total weight or volume of materials.
2. Exclusion of rejects and recalls of products while compiling information to be disclosed.
3. The processes used to collect and monitor waste-related data.
4. Recycling or reusing of products may be separately disclosed.
5. Recycling of input materials for manufacturing primary products.

Principle 3: Well-being of employees and employees of value chains

It is a well-recognized fact that employees are a vital part of any business organization. In line with this, the BRSR framework also covers disclosing the welfare and well-being of the employees and VCPs via Principle 3.

Actionable under BRSR
Well-being of employees and workers
1. Measures taken for the well-being of employees and workers.
●      Identifying the policies to be framed (Such policies can include health/medical/accident insurance, maternity/paternity benefits, day care facilities etc.)
Providing details of retirement benefits provided to employees/workers for the current and the previous financial year.
●      Identify the applicable laws on the entity for providing retirement benefits.
Plant and office assessment
2. Ensuring that the premises/offices of the entity are accessible to differently abled employees and workers
●      Identify the steps to be taken for making the premise of the entity accessible to differently abled workers and employees. This may include wheelchair ramps, signage braille etc.
4. Forming an equal opportunity policy as per Right of Persons with Disabilities Act, 2016.
5. Providing details of Return to work and Retention rates of permanent employees and workers that took parental leave.
6. Forming a mechanism to receive and redress grievances for permanent and other employees and permanent and other workers.
7. Providing details of membership of employees and worker in association(s) or Unions recognised by the company
8. Providing training to employees and workers on health & safety measures and skill upgradation.
9. Conducting performance and career development reviews of employees and workers.
●      Deciding the frequency of such reviews.
10. Implementing a health and safety management system
●      Laying down processes to be undertaken for identifying work-related hazards and assessing risks on a routine basis.
●      Laying down processes for reporting work related hazards for workers.
●      Providing access to non-occupational medical and healthcare services to employees and workers
11. Providing details of safety related incidents that occurred in the current as well as previous financial year.
12. Implementing measures to ensure a safe and healthy workplace
13. Providing details of complaints made by employees and workers on working conditions and health & safety.
●      Appointment of person/ committee (‘authority’) for looking into the complaints received.
●      Action taken by the authority on the complaints received.
14. Conducting assessments on whether the plants and offices of the company and reporting on the following metrics:
●      Health and safety practices
●      Working conditions
●      Appoint the person who is to conduct the assessment (it can be carried out by the company/statutory authority/third party).
15. Providing details of any corrective action taken or underway to address safety-related incidents.
16. Extending life insurance or compensatory package in the event of death of employees or workers.
17. Providing details of  the number of employees / workers having suffered high consequence work related injury / ill-health / fatalities, who have been rehabilitated and placed in suitable employment or whose family members have been placed in suitable employment.
18. Providing transition assistance programs to facilitate continued employability and the management of career endings resulting from retirement or termination of employment.
●      Formulation of the program based on the requirements of the reporting entity.
●      Decide the frequency of such programs.
Well-being of VCPs
19. Implementing measures to ensure that statutory dues have been deducted and deposited by the value chain partners.
20. Conducting assessment of value chain partners with respect to the following :
●      Health and safety practices
●      Working conditions
21. Providing details of any corrective actions taken or underway to address significant risks / concerns arising from assessments of health and safety practices and working conditions of value chain partners.
Taking guidance from GRI in implementation
1. Performance and career development review based on criteria known to the employees and superiors.
2. Grievance Mechanisms can be industry, multi-stakeholder or other collaborative initiatives.
3. Describing  type of occupational health and safety professionals responsible for the management system.
4. Defining worker and benefit for the purpose of this principle
5. Formula to calculate return rate and retention rate
6. Contents of Transition assistance programs provided to support employees who are retiring or who have been terminated
7. Definition of value chain
8. Definition of high consequence work related injury

Principle 4: Responsiveness to Stakeholders’ interests

The stakeholder group of a company is diverse and large. Each stakeholder has a different expectation from the company. It is important for companies to take the interests of all stakeholders into consideration while simultaneously pursuing its business objectives of growth and development. Principle 4 of BRSR asks companies to report about their stakeholders and the engagement practices with such stakeholders.

Actionable under BRSR
Identifying stakeholders, key stakeholders and marginalized stakeholders
1. Process for identification of key stakeholders.
●      Stakeholders include investors, shareholders, employees and workers (and their families), customers, communities, value chain members and other business partners, regulators, civil society actors, and media.
●      Basis of determining the stakeholders of the entity.
●      Based on the total number of stakeholders identified, categorize it into the groups to identify with whom to engage and not to engage.
●      Understanding the level of and extent of engagement required with each category of stakeholder.
2. Listing of the stakeholders identified as key stakeholders.
●      Identify whether the stakeholder is identified as a vulnerable/marginalized group.
●      Establishing the channels for communication with stakeholders.
3. Providing the processes for consultation between stakeholders and the Board on economic, environmental and social topics.
●      Formulation of process for providing feedback obtained to the Board.
4. Laying down the framework for incorporating the inputs obtained in (3) in formulation of policies.
●      Identify the arrangements necessary for addressing the concerns.
5. Identify the arrangements necessary for addressing the concerns of vulnerable/ marginalized stakeholders.
Taking guidance from GRI in implementation
1. Definition of stakeholders
2. Principles for effective stakeholder consultation
●      Aligning  with international standards
●      Collective bargaining,
●      Genuine consultation involves proper dialogue between parties
●      Affected parties to understand the impact of change.
3. Definition of vulnerable/marginalized groups

Principle 5: Promotion of Human Rights

It is quite common for companies to indulge in abusive practices, leading to exploitation of workers. While it is seemingly difficult for even the strictest of regulations to put a complete end to such abusive practices, the regulators’ approach has been that of requiring companies to report on the practices adopted by them to curb such violations and the remedy provided to employees who report such instances of human rights issues at the workplace. The new BRSR framework aims to mandate certain additional disclosures to ensure that companies respect and properly report on their human rights practices.

Actionable under BRSR
Training and awareness on human rights issue
1. Providing training to employees/workers on human rights issues and policies of the company
2. Providing details of minimum wages paid to employees and workers.
●      Computation of the minimum wages to be paid as per the provisions of Labour Code.
3. Providing details of salary/remuneration/wages paid to directors/KMPs/employees/workers
●      Computation of median salary/remuneration/wage paid for the purpose of reporting.
4.Constituting a focal point (Individual/ Committee) responsible for addressing human rights impacts or issues caused or contributed to by the entity in conducting its business.
Internal mechanism to combat human rights concerns
5. Implementing an internal mechanism to redress grievances related to human rights issues.
●      Identifying the relevant laws under which the human rights concern can be raised
●      Taking preventive actions under respective departments
6. Providing details on the number of complaints made by employees/workers during the year and pending resolution as at the end of the year for the current financial year and the previous financial year wrt the following issues:
●      Sexual Harassment
●      Discrimination at workplace
●      Child Labour
●      Forced Labour/Involuntary Labour
●      Wages
●      Other human rights related issues
7. Implementing mechanisms to prevent adverse consequences to the complainant in discrimination and harassment cases.
●      Familiarization of the workforce on the protective policies available  in the company to protect them against harassment and discrimination
8. Incorporating human rights requirements as part of the business agreements/contracts
9. Providing details on the % of plants and offices of the company that were assessed for :
●      Child labour
●      Forced/involuntary labour
●      Sexual harassment
●      Discrimination at workplace
●      Wages
●      Others
10. Providing  details of any corrective actions taken or underway to address  significant risks / concerns arising from the assessments at point 9 above
11. Providing details of a business process being modified / introduced as a result of addressing human rights grievances/complaints.
12. Conducting human rights due diligence
●      Identifying the scope and coverage of such due diligence
13. Ensuring that the office/premises of the company are accessible to differently abled visitors
●      Identifying the requirements for such visitors as given in the Rights of Persons with Disabilities Act, 2016
14. Conducting assessment of VCPs on the following issues:
●      Sexual Harassment
●      Discrimination at workplace
●      Child Labour
●      Forced Labour/Involuntary Labour
●      Wages
●      Others
15. Providing details of any corrective actions taken or underway to address significant risks / concerns arising from the assessments at point 14 above.
Taking guidance from GRI in implementation
1. Reporting entities should also provide additional information about its values, principles, standards, and norms of behavior.
2. Total hours during the reporting period devoted to training on human rights policies.
3. Training of employees for making them aware of human rights.
4. Employees of third- party organisations who have also been included in calculation of the total employees trained during the reporting period.
5. Total contracts that include human rights clauses.
6. Operations of the entity that has undergone human rights impact assessment.
7. Suppliers assessed for social impacts.
8. Social impacts identified in the supply chain.

Principle 6: Protection and restoration of environment

Considering the ever growing concerns around issues such as climate change and sustainable use of resources, it has become imperative for companies to factor in such concerns  in the way they operate and plan for the future. Principle 6 aims to ensure that companies are transparent about their sustainability practices and make adequate disclosures on their usage of the shared natural resources.

Actionable under BRSR
Energy consumption data
1. Computing total energy consumption and total energy intensity of the company in the current financial year and the previous financial year
●      Identifying the sites for energy consumption
●      Reviewing the green energy scheme beneficiaries
2. Identifying whether the company has any sites/facilities identified as designated consumers under the Perform, Achieve & Trade (PAT) Scheme of the Govt. of India.
Details of water, air, liquid and hazardous waste discharge
3. Providing details of water usage and treatment
4. Implementing a mechanism for zero liquid discharge
5. Providing details of air emissions (other than GHG emissions) and greenhouse gas emissions of the company for the current financial year and the previous financial year
6. Implementing a project related to reducing greenhouse gas emissions
7. Implementing waste management practices in the company. It shall cover dealing with the following types of waste :
●      Plastic waste
●      E-waste
●      Bio-medical waste
●      Construction and demolition waste
●      Battery waste
●      Radioactive waste 
●      Other Hazardous waste
●      Other Non-hazardous waste generated
8. Implementing a strategy to reduce usage of hazardous and toxic chemicals in the company’s products and processes and the practices adopted to manage such wastes.
9. Obtaining environmental approvals/clearances if the company has operations/offices in/around ecologically sensitive areas
●      Ecologically sensitive areas include national parks, wildlife sanctuaries, biosphere reserves, wetlands, biodiversity hotspots, forests, coastal regulation zones etc. 
10. Conducting environmental impact assessment of projects undertaken by the company based on applicable laws in the current financial year
●      The assessment may be conducted by an independent external agency
●      The results of such assessment shall be communicated in public domain.
11. Ensuring compliance with the applicable environmental law/regulations/guidelines in India
●      The company shall identify all the environmental law/regulations/guidelines the provisions of which are applicable on the company
●      Provide details of non-compliance and the fines/penalties/action taken by regulatory authorities such as pollution control boards or by courts
12. Forming a business continuity and disaster management plan
13. Assessing any significant adverse impact that was caused to the environment which arose from the value chain of the company
● The company shall form mitigation or adaptation measures to minimize such adverse impact
Taking guidance from GRI in implementation
1. Report management approach for computing emissions
2. Methodologies adopted to report different emissions under this principle
3. While computing the information required under this principle, the reporting organization should, if subject to different standards and methodologies, describe the approach to selecting them.

Climate change has been an area of increasing concern and for obvious reasons, dealing with the same is a responsibility of the corporates as well, as dealt with in our article Corporate Responsibility towards Climate Change.

Principle 7: Engagement with public and regulatory policy making

Large companies, owing to their multinational presence have the potential to impact and influence regulatory policy, which eventually results in defining the growth trajectory of the economy. Hence, they should ensure that they exercise their responsibility in a transparent manner keeping in mind the interests of the larger economy. 

Actionable under BRSR
1. Affiliations with trade and industry chambers/ associations.
●      Identifying the chambers/ associations for associating based on the sector in which the entity operates.
2. Corrective actions taken or underway on issues relating to anti-competitive conduct based on adverse orders from regulators.
●      Pre-deciding the appropriate frequency for review of the actions taken.
●      Appoint the person to be responsible for review.
3. Public policy positions advocated by the entity.
Taking guidance from GRI in implementation
1. Include memberships at the organizational level in associations
2. Anti-competitive behavior – actions that can result in collusion with potential competitors, with the purpose of limiting the effects of market competition, such as –
●      fixing prices or coordinating bids;
●      creating market or output restrictions;
●      imposing geographic quotas;
● allocating customers, suppliers, geographic areas, or product lines.

Principle 8: Inclusive growth and equitable development

Owing to the prevalent inequalities & imbalances in the society, it is a moral obligation of all individuals and corporations to contribute towards building a more equitable and prosperous nation. Companies are also required to disclose their practices towards accomplishing such an objective, thus enabling the stakeholders to identify whether such an organization fulfills its social responsibility or not.

Actionable under BRSR
Social Impact Assessments (SIA)
1. Ascertaining the applicability of SIA of projects undertaken by the reporting entity.
●      Deciding the frequency of assessment to be conducted during the reporting period.
●      Evaluation of the outcome of the assessment for taking up corrective actions if required.
Rehabilitation and Resettlement (R&R) exercise
2. Projects of the reporting entity taken up for R&R .
●      Understand the meaning the of R&R and its relevance with respect to the company
●      Pre-deciding the basis based upon which it shall be taken up for R&R.
3. Redressal of the grievances of the local community.
●      Defining the local community.
4. Input materials directly sourced from the MSME/ small producers.
●      Identify the materials to be procured from MSMEs and small producers.
5. Actions taken to mitigate the negative impacts identified in the SIA.
●      Fixation of the steps to be undertaken for identifying the impacts as negative or positive.
CSR Projects and its impact
6. CSR projects undertaken in the aspirational districts identified by the government bodies.
7. Formulation of Preferential procurement policy.
●      Bifurcation of the procurement made from marginalized /vulnerable groups and other suppliers.
8. Benefits derived from intellectual property based on traditional knowledge.
●      Identify the intellectual properties of the reporting entity  that is based on traditional knowledge.
9. Providing details of corrective actions taken in any adverse order relating to intellectual property involving traditional knowledge.
10. Identify the beneficiaries of the CSR projects carried out by the company.
Taking guidance from GRI in implementation
1. Social Impact Assessment (SIA) projects undertaken during the reporting period.
2. Public disclosure of results of the assessment.
3. Formulation of local community grievance processes.
4. Formulation of effective stakeholders’ engagement plans.
5. Reporting of negative impacts on communities because of business conduct by the reporting entity.
6. Senior management personnel hired from the local community.

Principle 9: Engagement with consumers

Over the years, businesses have gravitated towards becoming completely consumer centric, thus leading to consumers deciding the success or failure of the organization. Hence, it is essential that consumers make safe and informed choices while procuring goods and services. Principle 9 is intended to ensure that companies provide relevant information to consumers and redress their grievances, if any, thus improving the overall consumer experience.

Actionable under BRSR
Significance of consumer complaints and feedback
1. Implementing mechanisms to receive and respond to consumer complaints and feedbacks
Informing the consumer on the probable environmental impact.
2. Providing details on turnover of products and/ services as a percentage of turnover from all products/service that carry information about:
●      Environmental and social parameters relevant to the product
●      Safe and responsible usage
●      Recycling and/or safe disposal
3. Providing details of number of consumer complaints received during the year and pending resolution as at the end of the year for the current financial year and the previous financial year wrt the following :
●      Data privacy
●      Advertising
●      Cyber-security
●      Delivery of essential services
●      Restrictive Trade Practices
●      Unfair Trade Practices
●      Others
4. Product recalled on account of safety issues
●      Provide a bifurcation between voluntary recalls and forced recalls.
5. Forming a framework/ policy on cyber security and risks related to data privacy.
●      Defining cyber security and understanding its probable impact on the company
●      Identifying the cyber related risk to the data privacy
6. Providing details of any corrective actions taken or underway on issues relating to advertising, and delivery of essential services; cyber security and data privacy of customers; re-occurrence of instances of product recalls; penalty / action taken by regulatory authorities on safety of products / services.
7. Providing information on products and services of the company on different channels/platforms
8. Informing and educating consumers about safe and responsible usage of products and/or services.
9. Devising mechanisms to inform consumers of any risk of disruption/discontinuation of essential services.
10. Displaying product information on the product over and above what is mandated as per local laws.
11. Carrying out surveys with regard to consumer satisfaction relating to the major products /services of the entity.
12. Details of data breaches.
● Identify the impact of such breaches.
● Identify the information involved.
Taking guidance from GRI in implementation
1. Products and services for which health and safety impacts are assessed for improvement.
2. Non-compliances relating to health and safety impacts of products and services.
3. Complaints received concerning the breach of consumer privacy.
4. Measures taken to ensure security of personal data of the consumers collected by the entity.

Conclusion

While it is important for businesses to remain financially sound and report on the financials in a transparent and effective manner,  it is equally important for them to be cautious about the way their operations affect the environment and the society at large; and factor in sustainability practices in their day to day business operations. Looking at the vast contents of the BRSR format, companies are expected to initiate the actions at the earliest so that they are in a position to appropriately report on the same at the end of FY 2022-2023.  As discussed in this article, while the GRI Standards are one of the guiding factors to interpret and report, there are several other international reporting standards which serve the same purpose. 

BRSR is a crucial step taken in this direction as it will make the companies focus to a great extent on the reporting of such sustainability practices in a bid to ensure that companies fulfill their obligations towards the surroundings in which they operate and there is a more inclusive and sustainable economic growth.

While we discuss the “what to do” part of implementing BRSR in this article, the “how to do” part of the same has been dealt with in the Part II of this article.

[1] Uniform Framework for EPR under Plastic Waste Management Rules

EPR under e-waste management rules

Our resource center on Business Responsibility and Sustainable Reporting can be accessed here –

Resource Center on Business Responsibility and Sustainable Reporting

Workshop on Related Party Transactions

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Considering the overwhelming response to our workshop held on January 21, 2022, we are announcing the 2nd round of the session on RPTs.

Click here to register: https://forms.gle/7Y1DZaHsCaKrRo1Z6

Our resources on the topic can be found here: https://vinodkothari.com/article-corner-on-related-party-transactions/

FAQs on RPT regulatory framework as amended by the 6th LODR Amendment

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– Team Vinod Kothari & Company | corplaw@vinodkothari.com (as on January 19, 2023)

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Related Party Transactions- Resource Centre

The nitty-gritty of shareholders’ approval for material RPTs

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– A guide for practical implementation under the revised LODR framework

– Team Vinod Kothari and Company; corplaw@vinodkothari.com

Regulation 23(4) of the Listing Regulations require all material related party transactions (‘Material RPTs’) to be approved by the shareholders of the listed entity. With the commencement of the LODR (Sixth Amendment) Regulations, 2021 (‘6th Amendment Regulations’), the term ‘prior’ has been inserted before the term ‘approval’ thereby requiring prior approval of shareholders for Material RPTs.

With the provisions coming into effect from 1st April, 2022, several questions need our special attention given the concept of prior approval. Some of them includes –

Detailed discussion on materiality thresholds of RPTs for obtaining shareholders’ approval has been dealt with in our article and can be read here. Further, you may refer to the detailed FAQs on amended LODR framework as amended by the 6th Amendment Regulations. In this article, we try to focus on the nitty-gritties around obtaining shareholders’ approval for material RPTs.

Periodicity of shareholders’ approval

While the shareholders’ approval is required to be taken prior to entering into a material RPT, the primary question lies as to the periodicity and validity of shareholders’ approval. Looking at the material thresholds given under the explanation to Regulation 23(1), it is beyond doubt that the approvals are required on an annual basis, since the transactions are aggregated on an annual basis for all the transactions entered during the financial year. Further, the basis for determining materiality is the annual consolidated turnover of the listed entity as per the last audited financial statements.

A related question arises on the approval by shareholders in case of material RPTs in the nature of multi-year contracts. In such cases, while the contract may involve series of transactions which continues in subsequent years in addition to the year in which it has been entered, the same contract is to be placed before the shareholders if the contractual value for the said FY exceeds the threshold with all the necessary details. Whether such executory contracts, being already approved by the shareholders in the year of execution, are required to be subsequently approved by the shareholders on the basis of materiality as per the consolidated turnover of preceding financial year? In our view, the answer should be in negative. Considering that a contract has already been approved by the shareholders, the same need not be placed before the shareholders in the subsequent years of its tenure, even if the same is material in any of those financial years. If a converse view is taken, it will lead to repetition of the information before the shareholders and does not serve any fruitful purpose. Therefore, it may be concluded that the shareholder’s approval for multi-year contracts are valid throughout even if the approval is taken in the first year when it being executed becomes material.

Here, it has to be noted that shareholders’ approval for a contract/ transaction will be required only if the same exceeds the materiality threshold on a yearly basis. In case a contract is not material for the year in which the contract is executed, but becomes material in subsequent years of execution on basis of consolidated turnover of relevant preceding financial year, approval for the same should be obtained in such financial year in which it becomes material.

Extent and adequacy of information to be placed before the shareholders

The next question that requires consideration is the extent of information that is required to be placed before the shareholders in order to enable them to take a reasoned decision for approving/disapproving the proposed RPT. SEBI Circular issued on 22nd November, 2021 (‘SEBI Circular’) provides guidance on the disclosures required to be made and we have briefly discussed on the same in our article which can be read here.

However, it has to be noted that all the information pertaining to the proposed RPT are not available with the company at the time of seeking shareholder’s approval. This is so because calling a shareholders’ meeting is a time-taking process and there might be time gaps between approval of an RPT and actual execution of the same, and some information may not be specified well in advance. Therefore, a more reasonable approach towards obtaining shareholders’ approval may be to specify such  quantum of information, as far as may be possible for the company to provide at the time of obtaining approval which is expected to be adequate to aid the shareholders in taking their decision.

The information pertaining to an RPT shall broadly include the following –

  1. Name of the parties to the transaction/ contract
  2. Nature of transaction/ contract
  3. Amount involved
  4. Terms of the transaction/ contract
  5. Duration/ span of the transaction/ contract

Below we consider some examples to check the obstacles that may arise on providing such disclosures at the time of practical implementation by a company, and the probable way-out for the same without breach of the provisions and intent of law.

1.     Amount involved in the transaction/ contract

Let us assume the case of issuance or subscription of bonds by a listed company. It may happen that a listed company, from time to time, issues short-term bonds to its group companies or promoters or directors etc. for meeting temporary funding requirements. The amount of funds raised by the company may not be presumed in advance and therefore, disclosure of the same will not be possible.

Consider the case of an even more floating arrangement, such as that of investment in securities through a stock broker, who is a related party or the maintenance of a savings or current account with a related party. The value of the transaction in each of these cases cannot be presumed, and therefore, the specific disclosure of the said information in such a scenario may become difficult.

Possible way to address the issue

A probable solution in such a scenario may be to disclose the estimated maximum amount of transactions to be entered into with the related parties, and the basis for reaching such estimates.

2.     Terms of the contract/ transaction

We again take the example of the loans proposed to be given by the holding company to its subsidiary. The time of granting such loans is not fixed at the time of taking shareholders’ approval. Considering that all transactions are required to be done on an arm’s length basis, the terms of the contract cannot be reasonably determined well in advance since the same will depend on the market conditions at the time of actual transaction taking place.

For example, at the time of granting loans, the relevant terms relating to the tenure of loans, rate of interest, prepayment penalty etc. has to be determined on the basis of the prevailing market rates at that point of time. Therefore, disclosure of the same cannot be possibly made before the shareholders at the time of obtaining approval for the same.

Possible way to address the issue

The shareholders resolution may specify that the terms and conditions of the proposed contract will be determined on an arm’s length basis, at the time of actual execution of the transaction. The responsibility of the shareholders is limited to the approval of an RPT on the basis of information placed. The judgement call as to verification of the arm’s length terms has to be made by the Audit Committee and the shareholders place reliance on the same. The shareholders’ approval for entering into a material RPT does not absolve the Audit Committee from examining the reasonableness and viability of the transaction, as to satisfaction of arm’s length basis.

3.     Duration/ span of the contract

Another information to be disclosed is with respect to the duration/ span for which a contract continues. Any RPT should not be approved for an infinite period, but a maximum duration/ span of the contract should be indicated in the statement seeking shareholders’ approval.

Carve-outs to shareholders’ approval

Having discussed the practicalities involved in obtaining shareholder’s approval, another matter that requires our attention is the possibility of a generic shareholders’ approval providing carve-outs from obtaining shareholders’ approval for each material RPT. By a generic approval, we mean approval sought from shareholders for proposed RPTs without specifying most or all of the information referred above. For example, a bank obtains approval from shareholders for providing banking services to one or more of its related parties on such terms and conditions as suitable on an arm’s length basis, in the ordinary course of business, for any amount as approved by the Audit Committee, irrespective of the same being in excess of the materiality thresholds under Regulation 23 of the Listing Regulations.

Note that the above resolution does not contain any of the details, such as, the name of the parties, amount involved, detailed terms, or the tenure of the contract. Even the nature of the contract is very generic and the specific services included under the broad term ‘banking services’ is not mentioned. More than an approval, the resolution seems to be an enabling resolution giving powers to the Audit Committee to approve any transaction with any related parties, subject to the same being in ordinary course of business of the bank, being banking services and on an arm’s length basis. It is imperative to note here that such sort of approvals are not Material RPTs in itself but an approval for carving out exclusions from the RPT approval process.

While one may doubt the admissibility of such resolutions, it has to be kept in mind that in the given case, a specific shareholders’ resolution specifying all the requisite information would not have been tenable. Similar justifications exist for an NBFC in the business of lending providing personal loans to its related parties at terms approved by the Audit Committee on an arm’s length basis. In our view, such carve-outs are admissible only when the RPT is in ordinary course of business at an arm’s length basis, otherwise entered into with the general public as well.

Pre-approved transactions beyond the scope of aggregation

Having obtained shareholders’ approval for material RPTs to be entered into with a related party, whether transaction of any value in excess of what has been approved, entered into with the same related party during the same financial year for which a material RPT has already been approved, will require approval of shareholders? Let us understand the same by way of an example.

Suppose X Ltd, a listed company, purchases coal from its associate company, B Ltd. On the basis of the production capacity of the company, X Ltd obtains an approval from the shareholders for purchase of coal upto a value of Rs. 1500 crores in the FY 2022-23 from B Ltd, its associate company, at prevailing market prices. Now, during the year 2022-23, B Ltd offers debentures of a value of Rs 50 lacs to X Ltd. In the instant case, the value of transaction involving subscription of debentures by X Ltd does not exceed materiality threshold, however, aggregating the same with the material RPT of Rs 1500 crores, the same becomes material.

Therefore, whether it can be said that entering into a material RPT with a related party, disqualifies a listed company from entering into a transaction of any value without obtaining prior approval of shareholders for the same, or whether one may take a view that pre-approved transactions are not required to be aggregated again for the purpose of determining materiality, and therefore RPTs of an immaterial value may be entered into with the approval of the Audit Committee, instead of placing the same before shareholders for their approval?

If one goes by the first alternative, it would mean that for parties with which a company has entered into a material RPT, no transaction can be undertaken without the approval of shareholders. On the contrary, considering that the material RPTs have already been pre-approved by the shareholders, one may safely take a view that approval of the shareholders need not be taken for the transaction entered into with the same related party in excess of the value or other than the nature of transactions for which approval has been taken by the shareholders. Transactions upto the materiality limits, excluding the pre-approved transactions may be taken care of by the Audit Committee instead of placing the same before shareholders, since the same falls within the authority of the committee.

Ratification of material RPTs without shareholders’ approval

A company cannot be expected to anticipate all the transactions/ contracts to be entered into with its related parties in advance. Therefore, there may be a possibility of any transaction having entered into with a related party by a listed company, resulting in exceeding the materiality thresholds, thereby, causing a violation of Regulation 23(4) of the Listing Regulations. In such circumstances, does the RPTs become void or can the same be ratified by the shareholders so as to keep the validity of the contracts intact?

The issue itself is not simple – there are several angles to the ratification principles. If the interests of shareholders is in question, the shareholders may ratify the breach of duty of the directors. However, if there is a question of creditors’ interest too, for example, funds borrowed from creditors have been hived off into an RPT, there is no question of ratification by shareholders. In a New Zealand ruling in Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242, it was held that the concurrence by the shareholders prevents any complaint by them, but compounds rather than excuses the breach as against creditors. Similarly, if there is question involving public policy, there can be no ratification.

In case of Material RPTs, the power to approve lies with the shareholders, who are not related parties to the company. While we discuss the power of ratification by shareholders, it has to be noted that the act, in itself, is not beyond the authority of the company. It is merely because of the apprehension of conflict of interest that the transaction required shareholders’ approval. Therefore, the shareholders had the authority, but the directors did not have the authority. If the shareholders, who had the original authority to approve the transaction, after due consideration of the relevant facts, decide to approve it, the approval dates back to the date on which the original act was done. This is backed by the age-old maxim: Omnis ratihabitio retrorahitur et mandato priori aequiparatur.  Section 196 of the Contract Act also incorporates the principle of ratification of the acts of an agent by the principal; in the context, the directors may be regarded as the agents of the company.

Therefore, if there is a ratification by shareholders, the legality of the contract is not disrupted; the contract may continue. Ratification of such RPTs cannot undo the violation of Reg 23(4) but avoid a continuing non-violation on the part of the company.

Our resource center on RPTs can be accessed here – https://vinodkothari.com/article-corner-on-related-party-transactions/

SEBI notifies stricter norms for appointment of rejected candidates

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– CS Aisha Begum Ansari, Manager | aisha@vinodkothari.com | Last updated as on January 24, 2022

SEBI vide notification dated January 24, 2022 has notified SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2022 (‘Amendment Regulations’) applicable with immediate effect. With this amendment, SEBI has introduced provisions relating to appointment/ re-appointment of a person, including Managing Director (‘MD’) or Whole-Time Director (‘WTD’) or a manager who were earlier rejected by the shareholders at a general meeting.

Last year in January 27, 2021, SEBI issued a Consultation Paper for introducing provisions for appointment or re-appointment of persons who fail to get elected as MD or WTD at the general meeting of a listed entity (‘Consultation Paper’) to curb the practice followed by certain listed entities of passing separate resolutions for regularization of additional directors and for appointment of MD/ WTD. In cases where the latter resolution is not approved by the shareholders, the listed entities used to again appoint the same person as MD/WTD who could hold office until the same was again taken to the shareholders for approval at the next general meeting. The proposed amendments were also approved by SEBI in its Board meeting, however, with certain modifications.

This article discusses the procedure prescribed in the Consultation Paper and ascertains the compliance requirement to be ensured by the listed entity before appointing any director.

Consultation Paper limited the restriction to MD & WTD

In view of instances where the listed entities appointed the persons rejected by shareholders for appointment as MD/WTD by having two separate resolutions for regularization of additional director and for appointment of MD/ WTD, SEBI prescribed following stricter requirements for appointment of such rejected candidates, to ensure that no such appointments are made by the listed entity against the will of the shareholders and against the spirit of corporate governance:

  1. Justification by NRC as to why such appointment, despite rejection by shareholders, is recommended;
  2. Recording of reasons by the Board of Directors while approving the appointment, despite rejection by shareholders;
  3. Disclosure to the Stock exchange within 24 hours of approval by Board along with recommendations of NRC;
  4. Obtaining shareholder’s approval in the next general meeting or within 3 months from the date of such appointment, whichever is earlier (Requirement already implemented pursuant to insertion of Reg. 17 (1C) for appointment of directors made on or after January 1, 2022).
  5. Disclosure in the explanatory statement of the detailed explanation and recommendation from the NRC and the Board as to why such appointment is placed before the shareholders despite the earlier rejection by the shareholders.
  6. Mandatory cooling off period of next 2 years from being appointed or continuing as a director if the candidature of the person is rejected again by the shareholders.

Amendment in the Listing Regulations

Scope expanded to all directors and managers

While the Consultation Paper prescribed the requirement only for appointment of MD/ WTD, the Amendment Regulations cover all the directors and managers within its scope. Further, in view of enforcement of Reg. 17 (1C) of the Listing Regulations w.e.f. January 1, 2022, SEBI prescribed seeking prior approval of shareholders, being a stricter timeline than that proposed in the Consultation Paper.

Thus, the sequence will be as follows:

Rejection by the shareholders of which entity?

The language of the Consultation Paper and the Amendment Regulations clearly indicates that while considering the re-appointment of a person as a director, including MD/ WTD/ manager, the listed entity will have to see the rejection of such person by its own shareholders and not the shareholders of other listed entities.

History of rejection of person as a director, including MD/ WTD/ manager

The Consultation Paper as well as the Amendment Regulations emphasize on the procedure for re-appointment of a person who has been rejected by the shareholders. However, it does not provide any specific period upto which a company has to travel back to examine the rejection of such person. For instance, if a person’s candidature for appointment as a director was rejected by the shareholders ten years back, should the same be considered if the company intends to appoint him on the board of the company today? Further, should a company carry out due diligence to dig out the history of the appointee or seek declaration from to this effect from the appointee? Since, the Consultation Paper and the Amendment Regulations are silent on the above questions, the listed entity will be required to travel back to examine if the appointment of person was ever rejected by the shareholders in the lifetime of the listed entity.

Category for which a person was earlier rejected not relevant

The intent of the Consultation Paper was to counter the practice of the companies to re-appoint a person as MD/ WTD who was rejected by the shareholders for the same position, by providing stricter procedural requirements. In view of the restriction provided under the Amendment Regulations, it implies that the restriction is not only on appointment of person in the same category for which he was rejected but for appointment in any category of directorships or as manager. For e.g. if the candidature of a person was rejected for appointment as an MD, the requirement of prior approval will apply for appointment as NED as well.

Conclusion

The Board of Directors are primarily responsible for ensuring Corporate Governance and SEBI is determined to revisit and refine the process of appointment of directors by prescribing stricter norms in terms of process adopted for selection of candidates,  disclosure requirements,  timeline for seeking shareholder’s approval etc.  Due to the Amendment Regulations, the listed entity will have one more actionable i.e. to carry out due diligence to ascertain if the candidature of the proposed appointee was ever rejected by the shareholders of the listed entity.

Our write-ups:

  1. Snapshot of SEBI approvals – Public issues | Preferential allotments | Appointment of shareholder-rejected directors – click here
  2. A Regulatory Affair: Fair Value Discovery in Preferential Share Issues – click here
  3. Other write-ups on Corporate Law matters – click here

SEBI approves amendments – Public issues | Preferential allotments | Appointment of shareholder-rejected directors

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Amendments approved in various SEBI Regulations

– Team Corplaw | corplaw@vinodkothari.com

SEBI Press Release dated December 28, 2021 – click here

Our write-ups:

  1. SEBI approves stricter norms for appointment of rejected candidates – click here
  2. A Regulatory Affair: Fair Value Discovery in Preferential Share Issues – click here
  3. Other write-up on Corporate Law matters – click here

LODR changes on Independent Directors – Things to do before 1st Jan., 2022

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– CS Aisha Begum Ansari | CS Pieyusha Sharma | corplaw@vinodkothari.com

SEBI (LODR) (3rd Amendment) Regulations, 2021 | Corrigendum dated August 6, 2021

NSE Circular dated December 22, 2021 | BSE Circular dated December 22, 2021

Detailed write-ups:

1.Recent amendments relating to independent directors

2.SEBI notifies substantial amendments in Listing Regulations

3.New year brings stricter norms for appointment of IDs

4.FAQs on recent amendments under the Listing Regulations