Analysis of Pillars of BRSR Data

Authors:
Aditya Kulkarni
Lakshmi Murthy
Anuradha Damle
Raghavachari Madhavan
For more details, reach out to info@altometa.online

Introduction

With a rapidly evolving business landscape, the importance of analysing companies based on Environmental, Social, and Governance (ESG) criteria has never been more pronounced. The Business Responsibility and Sustainability Report (BRSR) has become an essential framework for analysing the environmental, social, and governance (ESG) performance of companies. Mandated by regulatory bodies like the Securities and Exchange Board of India (SEBI), BRSR provides a standardized approach for Indian companies to disclose their sustainability practices, making it easier to evaluate and compare their commitment to responsible business operations.

Executive Summary

In world of Indian businesses, Business Responsibility and Sustainability Report (BRSR) stands for global equivalent of ESG reporting. In this blog, we examine BRSR’s of companies to gain insights into corporate transparency, risk management, and the evolving landscape of sustainable business practices in India.
This analysis of BRSR data aims to explore the commitment of companies regarding Sustainability factors and assess the leaders in sustainable development.

All About Data

The Business Responsibility and Sustainability report (BRSR) filing by companies as compliant with the regulatory body SEBI, provides the basis for insights of companies. Please refer to our earlier blog on everything about data (from raw level to investment grade data for assessment): State of Sustainability Disclosures by Indian Companies – Altometa Consulting

Insights of BRSR 9 Principles

Sustainability analysis involves transforming current data for evaluating the influencing factors and analysing them. Organizations can make informed decisions to enhance their overall sustainability performance. 

In this analysis we will do following steps

• Identify the Principles for analysis

• Define Factors for analysis of selected Principles

• Identify factors most influencing and least influencing on the selected sustainability principles.

• Analysing the factors and getting insights

• Summarize the overall impact and ways to improve the sustainability of companies

Categorization of Principles under ESG

The 9 Pillars (principles) of BRSR, P1 to P9, can be categorized  into the Sustainability categories of Environment, Social and Governance as follows:

Environment 

  • P2 – Product Lifecycle Sustainability, 
  • P4 – Stakeholder Engagement, 
  • P6 – Environmental Management, 
  • P7 – Public Policy Advocacy, 
  • P9 – Consumer Protection

Social

  • P3 – Employee Well-being, 
  • P4 – Stakeholder Engagement, 
  • P5 – Human Rights, 
  • P8 – Inclusive Growth and Equitable Development, 
  • P9 – Consumer Protection

Governance

  • P1 – Ethics, Transparency, and Accountability, 
  • P4 – Stakeholder Engagement
 

Insights of Governance Pillars

We begin by analyzing the metrics covered under the BRSR Governance Principles – Principle P1 and P4. For P4 (Stakeholder Engagement), data elements are non-numeric. Hence do not consider for analysis.

P1 (Ethics, Transparency, and Accountability)

With the transformation of the data, following factors are derived for analysis:

  • Awareness ratio
  • Conflict of Interest ratio
  • Disciplinary Action ratio
  • Fine Ratio
Awareness Ratio

The Awareness ratio reflects the extent to which trainings and awareness programs reach various stakeholders, including the Board of Directors (BOD), Key Management Personnel (KMP), Employees (EMP) and Workers. It encompasses two key components: Training intensity (the number of trainings per individual) and %Persons Covered by Awareness Programs (the number of individuals covered by each awareness program).

We analyse the Awareness ratio first and thereafter the 2 components of awareness ratio.

Insights by Awareness Ratio (refer chart below)

An Awareness Ratio of 100% indicates that the company is highly efficient in reaching to its workforce. This reflects company’s commitment to ensuring that all members are informed about various policies and receive appropriate training, thereby promoting better governance.

  • Only 1.21% of companies have Awareness ratio above 80%. Example – PI INDUSTRIES LIMITED, Eris Lifesciences Limited, MM Forgings Limited. This number indicates that there are very few companies with the better Awareness Ratio
  • The median awareness ratio is 0% (44 companies). Example of companies with 0% awareness ratio – Tata Motors Limited, Axis Bank Limited
  • Maximum number of companies (20%) have awareness ratio between 30% to 40%
  • Examples of companies having awareness ratio between 30 to 40% – MACROTECH DEVELOPERS LIMITED, SUPREME PETROCHEM LIMITED, Westlife Foodworld Limited. This indicates that overall status of Awareness Ratio of companies is very low.
  • Around 91% companies have Awareness ratio up to 60%. Overall companies have low awareness ratio. This indicates that companies need to improve the Awareness Ratio.

Let us examine how the behaviour of the Awareness Ratio varies across different categories of companies based on market capitalization.

Above charts indicate that % of companies above 80% Awareness Ratio in Large cap companies is 3 times that of Mid cap and 2 times that of small cap companies.

Training Intensity

Training Intensity refers to the number of training sessions conducted per person. Training intensity    100% or above is good. This indicates every person in workforce is getting at least 1 training. 

Training intensity for Key Management Personnels (KMP) and Board of Directors (BOD). (Ref charts below)

  • Training Intensity is high in categories Key Management Personnels (KMP). Around 58% companies have Training Intensity above 90% for KMPs. But Training intensity much higher than 100% indicate that key people driving the strategies require to be trained or the reporting of the trainings need to be better.
  • Around 24% companies have Training Intensity above 90% for Board of Directors (BODs).

Training intensity for Employees (EMP) and Workers (Ref charts below)

  • Around 75% of companies have Training intensity for Employees and Workers up to 10%.
  • Around 5% companies have Training Intensity above 90% for Employees.
  • Around 7% companies have Training Intensity above 90% for Workers.
  • These numbers indicate that Training intensity for Employees and Workers is lower than that for KMP or BOD categories. Companies need to focus on identifying training areas and delivering it to Employees and Workers.
 

Examples of Higher training intensities– DIVI’S LABORATORIES LIMITED, Blue Star Limited 

Examples of lower training intensities — Axis Bank Limited, ROSSELL INDIA LIMITED

%Persons Covered by Awareness Programs

 

Percentage persons covered by awareness programs refers to the proportion of individuals reached by each awareness program, expressed as a percentage.

All categories of persons have high percentages of persons covered by awareness programs. 

  • For BOD and KMP categories, around 80% companies have persons covered between 90% to 100%.

 

  • For Employee category, around 57% companies have persons covered between 90% to 100%.
  • For Worker category, around 39% companies have persons covered between 90% to 100%.
  • For Worker category, around 37% companies have no persons covered by awareness programs. This is higher than respective percentage in any other category.
  • Persons covered greater than 100% occurs in few cases due to reporting issues like worker turnover, attrition or more trainings to employees.

 

 

  • Examples of Higher %Persons Covered — WELSPUN ENTERPRISES LIMITED, Tata Consumer Products Limited 
  • Examples of lower %Persons Covered — ICICI Securities Limited

 

Conflict of Interest ratio

 

The Conflict-of-Interest Ratio indicates the number of complaints received concerning conflict of interest issues involving the Board of Directors (BOD) or Key Management Personnel (KMP).
Out of 1073 companies, 1070 companies have 0 Conflict of Interest ratio. i.e.  no conflicts of interest by BOD or KMPs
Examples of Higher Conflict of Interest — Asian Paints Limited, United Spirits Limited
Examples of No Conflict of Interest — Aarti Industries Limited, Torrent Power Limited

 

Disciplinary Action ratio

 

The Disciplinary Action Ratio represents the number of individuals subjected to disciplinary actions, including members of the Board of Directors (BOD), Key Management Personnel (KMP), employees, and workers.
Out of 1073 companies, 1069 companies have 0 Disciplinary Action ratio. i.e. no Disciplinary actions required against BOD or KMPs or Employees or Workers.
Examples of Higher Disciplinary Action — COAL INDIA LIMITED, National Aluminium Company Limited
Examples of No Disciplinary Action — BERGER PAINTS (I) LIMITED, Orient Green Power Company Limited

 

 

Fine Ratio

 

Fine ratio indicates the Amount of Fines or Penalties, Compounding Fee and Amount of Settlement.

  • For 1071 companies, Fine ratio is below 10%
  • 88% companies have 0% or no Fines. Example of 0 Fine — Tata Communications Limited
  • 11% companies have Fines below 1%
  • A company having Fines ratio more than 100% might have reported data incorrectly (Bombay Dyeing & Mfg Company Limited)
 

 

Clustering based on the Ratios

 

Clustering is a method used to group companies with similar characteristics based on the four ratios mentioned above.

With the help of Pragya, following is the cluster diagram.

It shows 7 clusters.

 

The cluster analysis provides following insights: 

Awareness ratio contributes the most in deciding nature of any company for principle P1.

  • Companies in clusters 1, 2 and 5 are very low in numbers as compared to the number of companies in other clusters. Also, negative indicators (Fine Ratio, Conflict of Interest Ratio, and Disciplinary Action Ratio) are above the average. Hence these clusters can be considered as outliers. 
  • Cluster 3 demonstrates a higher Awareness Ratio than average, while negative indicators (Fine Ratio, Conflict of Interest Ratio, and Disciplinary Action Ratio) are close to average for companies in this cluster. This indicates that companies in Cluster 3 perform better from an ESG perspective.
  • Cluster 2 exhibits an average Awareness Ratio along with moderate levels of negative indicators. Therefore, companies in this cluster are less favourable compared to those in Cluster 3.
  • Cluster 4 and 6 have Awareness ratio below average which has negative impact on nature of the company as seen for P1.
  • Cluster3 Sector wise contribution

               Sector ‘Industrials’ and ‘Basic Materials’ form 43% of Cluster3. 

               Sector ‘Consumer Cyclicals’ also contributes around 16% to Cluster3.

               Sectors ‘ Healthcare’, ‘Consumer Defensive’ and ‘Financial Services’ contribute 24% to Cluster3

‘              Communication Services’ sector has least contribution i.e. 2%

 

 

Conclusion

1. Elements impacting ESG performance of companies:

     a. Awareness ratio (Trainings and Awareness programs held and its coverage) and 

     b. Fine ratio (Penalty/Fine, Settlement, Compounding Fee)

   Metrics that are less significant in differentiating amongst companies are:

     a. Disciplinary Actions ratio and 

     b. Conflict of Interest ratio

2. P1 better performers — PI INDUSTRIES LIMITED, Eris Lifesciences Limited, MM Forgings Limited

3. P1 lower performers — National Aluminium Company Limited, COAL INDIA LIMITED, KFin Technologies Limited

4. Overall observations of Indian businesses 

     a. Awareness ratio should be increased for Employees and Workers. This can be done by increasing Training intensity (Training per person) for   Employees and Workers. Also, Awareness programs should be increased for Workers by companies.

     b. Companies should ensure accurate and transparent reporting of conflicts of interest, disciplinary actions, and fines.

 

In our next article, we will analyze the next categories of sustainability.