Analyse Impact Of Upcoming Regulations On Indian Manufacturing Industries – BRSR Case
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Category: General Law
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ANALYSE IMPACT OF UPCOMING REGULATIONS ON
INDIAN MANUFACTURING INDUSTRIES – BRSR CASE
Ananya Chatterjee, BA LLB (Hons), Faculty of Law, Manipal University
ABSTRACT
Environmental protection in the law field is becoming a very important subject- matter to focus upon. As India is moving forward in industrialisation in line with the vison of Viksit Bharat to achieve economic growth, social progress, environmental sustainability, and good governance, it is important to keep a strong vigil on the protection of the environment for future generations. Manufacturing Industries are the one of the significant contributors to the economic growth but also the biggest source of environment pollution. To put a balance between setting and enforcement of a stringent legal framework, it is important to also ensure how to make business easy to ensure economic growth.
The paper aims to understand the negative impact of environmental incidences such as the Bhopal gas Tragedy which triggered many stringent enforcements to ensure the balance and how to ensure responsible growth. It also explores what is “polluters pays” and “precautionary principle”. Through case studies we further get clarifications about what all decisions are taken by the judiciary regarding manufacturing industries for the benefit of the court.
The paper also aims to cover, one such contemporary regulatory requirement BRSR (Business Responsibility and Sustainability Reporting) mandated by the Securities and Exchange Board of India (SEBI) for the top 1,000 listed companies by market capitalization, what are the challenges faced by the industries to comply with the new regulation and what can be done to overcome these challenges to ensure the aspirational growth that has been envisaged by India for Make in India vision.
INTRODUCTION:
Environmental issues are becoming a major concern not only for India but also for other countries. Therefore all the countries including India are looking forward for adopting different sustainable development approaches. The First initiative for the protection of the environment in the international level was taken in the year 1972 with Stockholm Declaration. This declaration required states to approve legislative in order to make the environmental protection of the state mandatory. Later in 1992, an international treaty, United Nations Framework Convention on Climate Change , was signed by 154 parties at United Nation Conference on Environment and Development ,also known as Earth Summit in Rio De Janerio. The motto of this international treaty was stability of atmospheric concentrations of greenhouse gases to avoid harmful anthropogenic i.
e, human-caused disruption of the climate system. These were the major steps taken by all the countries toward eradicating environmental issues. Manufacturing industries is said to be the biggest contributor of pollution, especially for air pollution and water pollution . As factories of the manufacturing industries highly depends upon fossil fuels like coal and natural gas for energy which leads to the emission of harmful gases like monoxides and nitrogen oxides ,which causes air pollution . The factories continue to dump toxic waste into nearby rivers, leading to severe water pollution that poses a serious threat to our environment and health. In India, the journey of rapid industrialization has transformed the nation's landscape, driving progress and enhancing economic opportunities for millions.
India stands out as a one of the leading economic country, supported by a robust manufacturing base that drives innovation and growth. But with the rapid Industrialization in India there is also increase in Pollution . However, India being one of the responsible nations became an active signatory to the COP28 at Paris with the commitment to the Net-Zero emissions by 2050.
PROTECTION OF ENVIRONMENT WITH INDUSTRALIZATION
The Make in India scheme which was launched in the year 2014 by our honourable Prime Minister Narendra Modi with the vision of converting India into a manufacturing hub. The main goal of this initiative was to develop the manufacturing sector in India. Due to this major effort by the government, there is a lot of enhancement in the manufacturing industries in India. But with this advantage there is also a drawback of these industries that is the increased
pollution which is impacting negatively impacting on our environment. However significant steps has been taken to reduce pollution that is caused by the manufacturing industries, with the growing industrialization, such as –
1. National Green Air programme
2. Central pollution Control Board had directed industries ,which has major contribution
in polluting the environment to install Online Continuous Emission Monitoring System.
3. Industries in Delhi have moved to PNG cleanser fuel
4. Setting up of OCEMS in Red category air polluting industries in Delhi-NCR.
5. All the industrial sectors need to abide by the standards mentioned in Schedule 1 and
schedule 4 in Environment protection Act 1986. The Bhopal Gas Tragedy case played a vital role in by showing that how much it is necessary for the manufacturing industries to fulfil their social responsibility towards the environment. In the Oleum gas leak case(MC Mehta vs Union of India ), the court stated that any industry which is engaged in any kind of hazardous activity ,first requires permission to carry such kind of activity from the proper authority, and second the industry needs to conduct the activity proper care and without any negligence, thirdly if any harm is caused by the industry then it will be ‘absolute liable’ , also pay compensation for the damage caused. In the Taj Mahal Case (MC Mehta vs Union of India) in this case the supreme court ordered the industries in the trapezium zone to use fuels such as propane or else other option for them was to relocate.
Also, in the Ganga Water Pollution case or Kanpur tanneries case (MC Mehta vs Union of India) the court has observed that it is necessary for the tanneries to set up a primary treatment plant, otherwise it will result into complete shutdown of tanneries.
CONTRIBUTION OF MANUFACTURING INDUSTRIES IN AIR POLLUTION
Manufacturing Industries are the major sources of the air pollution due to the emissions of volatile organic compounds, Nitrogen oxides, carbon dioxide, sulphur dioxide and other pollutants. Because of these harmful effluents there is an adverse impact on the environment. In India air pollution is prevalent in almost every city, especially the capital city that is Delhi.
In section 21 of Air (prevention and control of pollution) Act 1981 it is clearly stated that if any person needs to establish an industrial plant in an air pollution control are then he/she needs to acquire permission from state board. If in case the industrial plant was operating before 1st April 1988 in the control pollution are, then that industry needs to apply for the consent of the State Board within the period of three months. Based on the receipt of the application State Board can either accept the consent or reject the consent. But the state board needs to give reasons for the rejection to the industry and provide the industry with a fair opportunity of hearing.
If any industry is allowed to operate by the state board, then they adhere with certain conditions: Ø Industries have to install control equipment according to the specifications by the state board and needs to operate it. Ø If it is required then as per the directions of the State Bord the control equipment needs to be altered or replaced. Ø The control equipment should always be in a good condition. These are certain conditions which the industries need to abide by. For example, In Oleum gas leak case (MC Mehta vs Union of India), the Shriram Chemical plant which operated in pollution control area. It received consent under Article 21 of Air Act. After the incident took place, it was held that that central board shall inspect and if it is found that the industry does not abide by the conditions then it will take action against the industry which is authorized by the law.
BRSR (Business Responsibility and Sustainability Reporting) – REQUIREMENTS BRSR (Business Responsibility and Sustainability Reporting) published in 2022- 2023 is a legal requirement in India, mandated by the Securities and Exchange Board of India (SEBI) for the top 1,000 listed companies by market capitalization, making it mandatory for these companies to file a BRSR compliant report with their annual financial statements; essentially making it a legal requirement to disclose sustainability information according to the BRSR framework. The purpose is to promote transparency and accountability related to ESG (Environment, Social and Governance) practices.
BRSR has its foundation with the Business Responsibility Reporting (BRR) dating back to
2009. To align the Indian industries with globally accepted reporting frameworks like the GRI
and TCFD, SEBI published the BRSR core requirements and made it mandatory for top listed companies integrated as a part of the Integrated Annual Report. The legal impact of SEBI's BRSR (Business Responsibility and Sustainability Reporting) is that listed companies in India are now mandated to disclose detailed information about their Environmental, Social, and Governance (ESG). “Liability for contravention of the Act, rules or the regulations.
The listed entity or any other person thereof who contravenes any of the provisions of these regulations, shall, in addition to liability for action in terms of the securities laws, be liable for the following actions by the respective stock exchange(s), in the manner specified in circulars or guidelines issued by the Board: (a) imposition of fines; (b) suspension of trading; (c) freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories. (d) any other action as may be specified by the Board from time to time (2) The manner of revocation of actions specified in clauses (b) and (c) of sub-regulation (1), shall be as specified in circulars or guidelines issued by the Board.
” The potential consequences under the LODR Regulations include liability under securities law and actions by the respective stock exchanges, which can result in significant monetary fines, trading suspensions, freezing of promoter/ promoter group’s holding of securities and such other actions as may be notified by the SEBI from time to time. SG) performance.
Although BRSR reporting is going to be a key enabler to make Indian companies globally competitive through a unified and transparent reporting format based on the nine principles of National Guidelines for Responsible Business Conduct (NGRBC) introduced by SEBI. However BRSR implementation has its own challenges for adoption and implementation across industries in India.
BRSR – EARLY ADOPTION BY MANUFACTING INDUSTRY AND CHALLENGES
BRSR implementation across all manufacturing industries where the Value chain complexities are far too high, the industry is facing early adoption challenges. Though the parent listed entities are aggressively moving to adopt to the requirements of reporting, the assurance requirements are far too stringent. Today’s manufacturing industry is struggling with the early adoption challenges of the BRSR asks and also sceptical as they envisage the Risk rating to get impacted which indirectly might impact the reputation of the organisation as a responsible entity. Few of the critical challenges which needs immediate attention
1. Time for maturity in adoption of the BRSR reporting – The industry is quickly
trying to understand, interpret and report the KPIs performance with the assurance standards in mind. Till now manufacturing industry in India was more into Management Systems certification which was more process centric. Data management is becoming an arduous task, hence it is taking time to collect, verify and assure the sustainability metrices which were nor a part of regulatory requirements. The shift from system based to and assurance based framework needs time.
2. Uniform understanding of the requirements – Since the framework is new, each and
every stakeholder has their own way of interpreting the requirements. BRSR is evolving and it needs to capture the industry requirements and publish an exhaustive annexure to define and explain the criteria wise requirements. In today’s context there is a huge gap in understanding between the industry and the assurance providers who are more finance focused. A mismatch between the financial data-based approach and the thirdparty assurance providers’ opinions is a big challenge.
3. Resource allocation – Organisations never realised that going through an assurance
process would require so much extra efforts. No resource planning was done to handle such requirements either by the listed entities themselves, or by the Value Chain Partners which has been a part of the reporting scope with top percentage of sales / buyout values for the listed entities.
4. Policy gaps including board approvals : The organisations were pretty taken by
surprise and very minimum time was given to organisations to create the Policy changes and get the necessary Board approvals for resource, approval of internal framework to comply with the requirements.
5. Fragmented Value Chain : The Listed entities who are supposed to disclose along
with their Value chain partner scope are faced with one of the biggest challenges of having a fragmented upstream Value chain. The Value chain partners who are small and medium scale enterprises cannot afford to mange resources both in terms of competence and capability as also the cost of data management and comprehensive compliance requirements for assurance of their listed customer.
FACING UP WITH THE CHALLENGES
It is imperative that with the Vikshit Bharat@2047 Vision the ease of doing business has to be ensured. The same is aimed for BRSR including other regulations as declared in the annual Budget “To simplify, ease and reduce cost of compliance, financial sector regulators will be requested to carry out a comprehensive review of existing regulations.” Organisations need time to get the systemic arrangements in place and quickly rise to the requirements of the future focused sustainable growth.
1. Training and awareness to the last mile on the common understanding. Building up
capabilities and competencies to address the requirements is extremely important.
2. Simplify the requirements and need to have comprehensive policy in line with the nine
NGRBC principles, a step beyond the minimal requirements of the Listing Obligations and Disclosure Requirements (LODR). This will enable organisations to establish their internal framework, adopt tools and structure the data collection.
3. Progressive maturity time first through an assessment approach and then slowly
progressing to an assurance-based reporting would enable the industry to grow sustainably.
4. Standardised guidance for measurement methodology of indicators and reporting
would help close the understanding gap between reporting organisation and the thirsdparty assurance providers. Different opinions make the process difficult to adopt and hence become more complex.
5. Establish step-by-step focus towards Value Chain partners to have their own assessment
toolkit (in line with BRSR Lite for MSMEs) and then include them in the disclosures for listed entities and Value Chain Partner scope.
COCLUSION
As we have done a deep dive and comprehensive analysis of the various cases that have continuously shaped the policies and governance of manufacturing industries in India, BRSR one of the upcoming regulations is going to impact the industry in a big way across the value chain. Understanding the nuances of BRSR for both the listed entities and for the Value Chain Partners is equally important in our Vision towards Vikshit Bharat@2047 where we aim to grow sustainably and make India a developed nation by 2047, the 100th year of its independenc encompassing various aspects of development, including economic growth, social progress, environmental sustainability, and good governance.
As we approach in a very structured and systematic way with policies well defined, the industry is definitely going to contribute positively towards the ambition thereby ensuring India as one of most responsible countries for future generations times to come.
REFRENCE:
https://www.researchgate.net/publication/330448154_THE_ROLE_OF_ENVIRONM
ENTAL_LAW_IN_THE_IMPLEMENTATION_OF_SUSTAINABLE_DEVEL
Press Release:Press Information Bureau • M.C. Mehta vs Union Of India And Ors on 19 December, 1996 • M.C. Mehta vs Union Of India And Ors on 19 December, 1996 • https://indiankanoon.org/doc • https://disputeresolution.cyrilamarchandblogs.com/2024/04/sebis-esg-disclosuremandates-unveiling-the-valuehain/#:~:text=(a)%20imposition%20of%20fines;,SEBI%20from%20time%20to%20ti me. • https://www.ey.com/en_in/insights/climate-change-sustainability-services/brsrreporting-and-the-evolving-esg-landscape-in-india • SEBI Consultation Paper