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Every organization should have a framework for governance in an organization. Governance can be understood as the relationship between the internal components and the external components of the business. Governance plays a crucial role, as it directly affects the goodwill of the organization. Therefore every company must make sure to have a good governance system in place. However, it is not enough to have a governance system in an organization. The governance system of an organization should also be accompanied by internal controls and a proper policy of monitoring. Monitoring can be done internally and externally. Apart from internal monitoring, there is a requirement to compulsory adopt the policy regarding external monitoring and reporting.
In 2011 there was a discussion headed by the Ministry of Corporate Affairs (MCA) on certain requirements such as the National Voluntary Guidelines on the Social, Economic, and Environmental aspects which corporate has to take into consideration. With this consultation, the Government of India considered that certain responsibilities have to be adopted by companies voluntarily. In the consultation, some of the main considerations of companies were related to the social responsibility of organizations.
This was considered by the monitoring agency, SEBI, to come up with certain guidelines regarding the reporting standards of the business. SEBI took a view of the continuous failures of the governance mechanism of Indian corporate in spite of having stringent regulations. Because of this, the SEBI brought out the system of Business Responsibility Reporting (BRR). Companies have to submit a business responsibility report as per the requirement of the SEBI. However, this was only limited to the companies that were listed in a recognized stock exchange. Apart from this, the overall picture of the Business Responsibility Report is for effective compliance for corporate governance norms of listed entities.
The Business Responsibility Report, which was required to be submitted by companies, had to be approved and implemented in a phased manner. In order to avoid confusions regarding the division, the SEBI had divided the requirement into two stages. These stages, also called phases are as follows:
Stage I- In this phase, the SEBI had considered the requirement of mandatory submitting a Business Responsibility Report. The requirement of submitting the business responsibility report was only for the top 100 listed Entities. This was included in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the SEBI LODR Regulations. In the above Act, under Regulation 34(2) f – the top 100 entities must include the Business Responsibility Report in their Annual Report as per the prescribed format.
Stage- II- In this phase, the extension of the Business responsibility reporting was on the basis of the Market Capitalisation of the top 500 listed entities. This phase was brought out in the year 2016.
Apart from the above two phases as mandated by SEBI, there were many such notifications and regulations brought about to improve the requirement of a company when submitting the business responsibility report. These notifications were introduced and have an effect now.
A Business Responsibility Report must portray the following core elements:
Through the above principles, a business can effectively contribute to society. The values and principles of business responsibility reports have been incorporated in the SEBI format of the business responsibility report.
From the above amendments, it is clear that there are provisions related to the framework regarding the management and governance of an organization. Therefore corporate governance reporting is one of the central and mandatory provisions of the Business Responsibility Report. For effective implementation of the above provisions, companies are given 90 days.
Since the SEBI has brought out various amendments regarding listing regulations and reporting standards of listed entities, there would be effective harmonization of the previous and present regulations related to listed companies. The features of the SEBI LODR regulations are as follows:
The above regulations show that entities must not only be compliant with domestic principles regarding listing and governance but also in line with international principles of listing.
In 2019, SEBI had increased the limit from 500 companies to 1000 companies. Due to this notification, the top 1000 companies that are listed in recognized stock exchanges have to mandatory publish in their annual report, the Business Responsibility Report (BRR). This was brought for transparency in an organization. The objectives of the organization must be in line with that of the stakeholders of the business. Companies have to be more socially responsible to their stakeholders. The main requirement for carrying out the business responsibility report is for companies to balance their priorities. By submitting the business responsibility report in the annual report, monitoring institutions such as the SEBI would have information on companies that have complied with the LODR regulations.
The BRR has five sections:
Whenever a company submits its annual report, it must fill in the information regarding the compliance with the Business Responsibility Report. In case there is non-compliance with the provisions of the Business Responsibility Report, then there are separate penalties under specific regulations.
Every organization requires corporate governance. Having a proper governance framework would provide transparency and clarity in the dealings of the organization. It would improve the relationship between the shareholders, stakeholders, and the employees of an organization. However, without proper monitoring and reporting standards, such governance frameworks cannot be maintained. The MCA has brought out listing regulations that have been regulated by SEBI. SEBI has made certain amendments regarding these regulations, including the change regarding increasing the number of listed entities from 500 to 1000. These entities are required to submit a business responsibility report with the annual return. Through the BRR, the monitoring body will know if the business is compliant with the necessary provisions by listed entities. By submitting such a report, a listed entity will be not only compliant with reporting, but also compliant with the rules related to corporate governance.