Wrong BRSR Disclosure: Lack of Skill of Director or Wrong Reporting- Case Study From The Axis Bank

  

                                                                    * BIRENDRA  K JHA

The thrust of the Companies Act, 2013 on businesses,  puts fiduciary duties on the Directors of a Company under Section 166,  requiring them to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. If this mandate is read clearly then it requires the director to follow strictly, the Complaints/Grievances'  on any of the principles (Principles 1 to 9) under the National Guidelines on Responsible Business Conduct, based on reasonable assurance & audit.

A large number of top Indian companies have been getting third-party audit-assurance on their sustainability reports under the voluntary reporting regime as well as mandatory. The crux is that, if BRSR is presented for disclosure with the annual report, it should must incorporate SEBI mandatory guideline, to report disclosure based on the third party audit assurance audit report. 

At a time when green washing is rampant throughout the world, mandatory ESG disclosure and third-party assurance of disclosures in the BRSR are the primary weapons that regulators deploy against the green washing. Hence, the responsible director of a company has a fiduciary duty under Section 166.

Reasonable assurance is an independent assessment by a qualified third-party assurance provider that a company's BRSR disclosures are accurate and complete. It provides stakeholders with confidence in the credibility and transparency of a company's BRSR performance.

The SEBI in the BRSR Format, where ESG  compliance  has been endorsed, places a column number 26. This column says: "Overview of the entity’s material responsible business conduct issues  Please indicate material responsible business conduct and sustainability issues pertaining to environmental and social matters that present a risk or an opportunity to your business, rationale for identifying the same, approach to adapt or mitigate the risk along-with its financial implications, as per the following format."  

The format has two separate headings: 

(a) Value Chain Partners 

(b) Other (please specify)

The "Other" part contains all those "material issues" on the ESG Non Compliance (NC ) issues, which are not appearing elsewhere in the report. This is required to be given here. If not reported properly or format has been changed, just  to suppress information. Then this is wrong reporting and sufficient ground for punishment to the directors. If the headings are clubbed into one heading. Then, it is also a clear  attempt to suppress the "material information".  In this column information supplied by auditor as well as available within the company domain, shall only be reported by director. The auditor observation, comes from  the independent audit and assurance. 

Axis Bank- BRSR Report 2021-2022 

In this background let us check the BRSR Report of the Axis Bank of 2021-22. The Axis Bank has clubbed the information of the "Value Chain Partners + Others" as one column reporting. This clubbing of information brings "suspicion" and "reasonable doubt" among the "Social Auditor". Why the information has been clubbed ? Normally such short tactics is adopted to suppress any material information.   

Now see what the Axis Bank is disclosing  here "A total of 406 whistle blower complaints have been received, of which 87 of them have been received from external stakeholders. Due to the anonymity of the complainants, it is not feasible to present the categorization of the stakeholders from whom these complaints have been received". The Axis Bank is only reporting here "whistle blower complaints". Where is the Non Compliant Issues endorsed by the independent auditor? This is not here. The director has no liberty to put here information of  own choice. This is clear violation of SEBI Law and wrong practice of BRSR reporting. 

The "Others" part puts,  the "fiduciary duties on the Directors" to disclose information related with the core "material issues" pertaining to environmental and social matters arising inside the Axis Bank. 

Transparency is crucial in communicating Environmental, Social, and Governance (ESG) risks and opportunities. The way  Environmental, Social, and Governance (ESG) part has been reported by the Axis Bank is not transparent. Something the Axis Bank is not disclosing here. The "material responsible business conduct issues" are not reflected here.  

It appears very clearly that the directors of the Axis Bank have not discharged the fiduciary duty. Had the reasonable audit and assurance been conducted, there may have raised several Non Compliant (NC)   issues. Some examples of the NC Issues are given below, which are most prevalent in the banking sector: 

a) Credit risk is attracted where banks are lending to customers whose businesses are adversely affected by the costs of cleaning up pollution or by changes in environmental factor. For example, the costs of meeting new requirements on emission levels, is sufficient to put some companies out of business. Banks may  find themselves directly affected,  if  value of property that they have taken as collateral is impaired by contamination.

b) Banks like other companies are at risk if not complying with environmental law. The bank is more at a risk of direct lender liability for clean-up costs or claims for damages if they have actually taken possession of contaminated or pollution causing property as a result of realizing security. 

c) Banks are seen associated with large-scale projects that are viewed as socially or environmentally damaging, such as dam projects or investment in chemical plants 

d) Whether bank has produced  formal environmental policy statement and making this publicly available or not? If not made or published for public then this is NC issues.  

e) United Nations Environment Programme (“UNEP”) and leading banking and insurance companies have identified sustainable development and environmentally sound business practices in the financial sector. Whether such sound practices are also promoted in bank  or not ?

f) Gender disparity - inequality in banks 

g) Poor  working conditions - heavy work load in banks  , 

h) Illegal termination from service causing human rights issues in banks 

i) Illegal harassments'  to the Trade Union office bearers in the bank or sexual harassments issues against women employees. What is the standard and practice ? There is any material issues or not ? 

j) Safety issues related with any financial products, like fraudulent practices of withdrawing customers money. 

k) non disclosure of supply chain transparency, and more. 

l) Poor labor practices of banks; etc.

All above  NC issues are listed down by the independent assurance and audit while auditing the ESG Audit and identifying the gap. But, the Axis Bank has failed to produce the correct BRSR disclosure. Whatever reported, this is defective, poor and bad.  The CRISIL has taken such unreliable document of BRSR for calculating the ESG Rating. This is demonstrated here that such practice of CRISIL is without mind, bad and unreliable.   

This is extremely worrying point, when according to an RBI annual report, the  private sector bank has  accounted for 66.2% of total frauds. In Axis Bank fraud has been reported with 6,124 cases (This is worth Rs. 25.07 crore ) in FY21-22. This was the "Material Part", coming in Principles 1 to 9 under the National Guidelines on Responsible Business Conduct. This is missing from disclosure. There may be several such other missing information. This is only the tip of the visible iceberg, hidden under a sea. This is totally ESG Issues. Other ESG issues, which are hidden under the sea, becomes visible only when independent audit and assurance is conducted. Recently the RBI has given guideline also on the ESG compliance to the banks after conducting reasonable independent audit & assurance.   

Thus the Axis Bank has submitted wrong BRSR disclosure report of 2021-22. The call may be taken by the SEBI, why Axis Bank did such major compliance failure? This is lack of skill of director or what?   

( Birendra K Jha,  is a Pan India Practitioner on the "Social Impact Assessment Audit"; "ESG Audit" & "Sustainable Practices".  He is a Qualified & Certified  Social Auditor from the Institute of Social Auditor of India (ISAI -ICAI). He is also certified professional on the ESG; Environmental Law; Carbon Emission Accounting; Carbon Tax & Sustainable Practices. He is based at Delhi-NCR. He overlooked at senior position as General Manager and Deputy General Manager in the previous South Korean MNC Company in India handling human resource, social audit,  ESG and sustainable  practices for more than a decade. He may be approached at: birendrajha03@yahoo.com ) 

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