Over the past few years, we have seen a rapid proliferation of sustainability reporting regulations worldwide. Sustainability reporting, which has been voluntary for many eons, is moving into a regulatory framework in many countries. In India, we have the Business Responsibility and Sustainability Reporting (BRSR) regulation by SEBI, which applies to the top 1000 listed companies.  Across the EU, the Corporate Sustainability Reporting Directive (CSRD) has already been in place from this year onwards. Many other countries already have regulations or have announced upcoming regulations on sustainability reporting. 

This might be the right time to explore as to what is the purpose of sustainability reporting regulation.

The broader purpose of any regulation is to align private behavior with the public interest. So are regulations on sustainability reporting. However, when you look at the purpose of regulations on sustainability reporting, the most common response is to improve the quality, consistency, and comparability of sustainability information disclosed by companies. Yes, the accuracy and reliability of the sustainability information improve with regulation because most regulations now require a commitment from the highest governance body and a certain level of assurance. Hence, the quality of the sustainability information is bound to improve. We will also see a significant shift in the quantum of sustainability related data and information in the public domain — more than 1000 disclosure points of CSRD from more than 50,000 companies in the next 5 years. We are already witnessing a number of articles in mainstream media in India analyzing the data from 1000 companies to whom the regulation is applicable. It is going to be Big Data around sustainability.

The sustainability reporting regulations also help with standardized reporting through defined metrics.  While I know that these definitions are not perfect as of now, but I am sure it will evolve better soon. Standardizing these metrics helps in better comparability. Although voluntary standards like Global Reporting Initiative (GRI) had definitions, compliance with those was limited. But, once it is defined under a regulation, companies have to comply.  Let me give an example of one metric from BRSR: the employee turnover rate. I have engaged with all the top IT firms in India during my consulting days and can share how some of them used to report this metric before the regulations came in. Company A used to do a simple calculation of the number of people who left employment during the year divided by the total number of employees at the end of the year.  Company B used to do a weighted average method across months.  Company C had an internal definition: if an employee quits within 1 year, they do not count it as turnover. Since these definitions are not public information, consider the challenge of an analyst who prepares a comparative chart based on these disclosures. But today, we have clarity on how turnover should be calculated as part of the guidance given by BRSR.

Sustainability reporting regulations also prevent “Greenwashing”. Yes, that is right.  Look at the BRSR reporting format; there is no way a company can highlight its “HIGH” and/or lowlight its “LOW”. BRSR disclosures now require companies to also file them in XBRL format. The XBRL disclosure requirement goes even further by not allowing any qualifications for the information disclosed. In XBRL, where data has to be entered as %, it can be entered as % only. While the annual report version of the BRSR, in PDF or print, might have some qualifications or comments below the tables, there is no provision in XBRL format. For analysts, it is easy to do analysis using the XBRL rather than searching the annual report. Just a simple code can access specific information from a particular cell of BRSR for all 1000 companies. Although I hear analysts complaining about the quality of XBRL, we need to understand that this is the start. EU is also mandating that CSRD be in XBRL format, and I am sure this will be the normal course for all regulations worldwide. Once the information is available in digital machine-readable form, top it up with AI and analytics, and you can envisage the impact.

But is that the ultimate purpose of sustainability reporting regulations?  So, what happens when we have good quality, consistent and comparable disclosure? It has to help investors and customers/consumers make better-informed decisions based on sustainability data, which should encourage companies to adopt responsible and sustainable business practices and lead the transition to a sustainable economy. According to Theory of Change (ToC), we can categorize this sequence as immediate, intermediate, and purpose outcomes. The sustainability-focused economy is the purpose outcome, investors/customers/consumers making sustainable decisions is the intermediate outcome and good quality, consistent and comparable disclosure is the immediate outcome for the Sustainability Reporting regulations. No, I am not suggesting a simple linear model like this can bring about change.  It needs efforts in multiple dimensions, but one of the pathways can be this. Many other dimensions should lead to the purpose outcome of a sustainability-focused economy, and it is not just sustainability reporting.

Should policymakers and regulators look into the full sequence of activities and outcomes leading to the real purpose (not just focus immediate outcome)? Would companies’ compliance be better if they understood the bigger picture? The answer to both questions should be a simple yes.

Let me explain the bigger context as laid out in EU. CSRD is only one piece of the puzzle to what EU is aiming to achieve.  It starts with the EU Green Deal, which aims to transform the EU into a modern, resource-efficient, and competitive economy.  The green deal has set motion to more than 175 directives and regulations, of which CSRD is one. 

Apart from CSRD, some of the other more talked about ones are:

• Corporate Sustainability Due Diligence Directive (CSDDD)
• Sustainable Finance Disclosure Regulation (SFDR)
• Taxonomy Regulation
• Ecodesign for Sustainable Products Regulation (ESPR)
• Carbon Border Adjustment Mechanism (CBAM)
• Deforestation Regulation (EUDR)

Now try to visualize how each of these regulations is directed to its immediate outcomes, intermediate outcomes which leads to the purpose outcome of fulfillment of the objectives laid out in the EU Green Deal. What we need with regulations in India is also a visualization of the bigger picture.  Where does each regulation fit the jigsaw puzzle of a sustainability-focused economy?  We are definitely missing this. While BRSR is coming from the Securities and Exchange Board of India (SEBI), CSR regulations coming from the Ministry of Corporate Affairs (MCA), we have environmental regulations coming from the Ministry of Environment, Forest and Climate Change (MoEFCC) and renewable energy focused regulations from the Ministry of New and Renewable Energy (MNRE) and so on. Are these regulations part of a bigger plan or are they mutually exclusive activities which does not have any relation between them?

If you do not know where you are headed, it does not matter which road you take.  Our sustainability vision and the roadmap for India should not be like that. The big picture is in the vision of the artist and every brush stroke is about making that vision a reality.

Ultimately, we need to envision the puzzle of sustainable nation. It should not be that we are missing some puzzle blocks and trying to solve the puzzle. It is time that our policy and regulatory system start to stitch together the Theory of Change for a Sustainable India (that is Bharat).

Santhosh Jayaram is Adjunct Professor of Practice at the Amrita School for Sustainable, Futures, Amrita Vishwa Vidyapeetham