BRSR: Making ESG accessible

Introduction

India has taken several strides in the fight for environmental, social & governance aspects that have historically plague economies and industry. The thrust towards sustainability has won laurels from all major global powers given the longevity of the goal and possible economic impacts.

Sustainability reporting in India will make a big shift to a more comprehensive format – Business Responsibility & Sustainability Reporting (BRSR) effective FY2023. This is in line with global trends, where regulators are increasingly focusing on wider sustainability disclosures. The focus is also aimed at keeping up with the growing acceptance of ESG investing. Even as the new norms are a good start to transition, top-1,000 companies in one go, they will need to evolve over time to be at par with the best global practices.

What is BRSR?

In November 2018, the MCA constituted a Committee on Business Responsibility Reporting (the Committee) to identify and conceptualize standardized reporting formats for listed and unlisted companies keeping in mind sustainability goals set forth by the government and international best practices.

Source: SEBI circular dated 10 May 2021

The disclosures are based on a variety of ESG parameters, compelling organizations to holistically engage with stakeholders and go beyond regulatory compliances in terms of business measures and their reporting. The aim of the reporting framework is to provide stakeholders identifiable comparators between companies on various commonly understood ESG metrics.

ESG & Investing – How BRSR Improves data availability

BRSR is a standard and consistent framework which has been prepared keeping in mind the dynamic global trends in sustainability reporting. It is evident that the Indian reporting scenario is evolving rapidly in line with international norms and regulations where corporates are expected to run businesses conscientiously and maintain transparency and accountability in reporting. BRSR is expected to be used as a single source for disclosing sustainability-related information in India. It would also serve as a base document for various stakeholders, especially investors, to bring about comparability amongst companies.

How does BRSR compares with global frameworks?

For global companies who report on ESG issues, many implement one or several voluntary reporting frameworks to best balance regulations and transparency. For most, the determination of an appropriate framework stems from a company’s individual ESG objectives and the desired audience for their disclosure.

Source: Bloomberg, SEBI, Respective agency website

Axis AMC & ESG

At Axis AMC, we view ourselves as the ‘owners’ of the business we invest in. This is reflected not only in the way we evaluate a business and work with management, but as well as our time frame for investment. As a house, we are long term in focus. The approach is not just as an investor but as an ‘owner’ which is a key differentiating feature and reason for our success. We focus on generating long term capital appreciation by investing in a diversified portfolio of companies demonstrating sustainable practices across Environmental, Social and Governance (ESG) parameters.

In our analysis, quality companies are those that have a strong competitive positioning, sound balance sheets and cash flows, credible management team and sustainable growth potential. Companies that meet these criteria are included in the investment universe and on which detailed fundamental research is carried out. Our portfolio construction approach is bottom-up, benchmark-agnostic and focused on investing in our best ideas that can provide sustainable growth while controlling portfolio risks. Much of the prevalent ESG thought process is therefore embedded in our investment philosophy and is largely incorporated in our investment process. The Axis ESG Equity Fund will invest in a portfolio of companies that meet the internal ESG criterion on an ongoing basis. The ESG score will be a points based evaluation of companies on environment, social and governance parameters.

Our Approach

At Axis we see ourselves as long-term stewards of our investors’ capital and this philosophy naturally leads us to focus on the long-term prospects for the companies in which we invest. Axis manages its portfolio with the objective of generating returns consistent with funds’ objectives. It is therefore central to our investment process to consider each company's ability to create, sustain and protect value. We believe that analyzing a company’s exposure to, and management of, Environmental, Social and Governance (ESG) factors, in addition to traditional financial analysis, will enhance our understanding of a company’s fair value and its ability to deliver long-term sustainable returns.

Integration

We employ an integration approach to ESG rather than a simple screening. While we do not focus on real world outcome in terms of specific targets pertaining to emissions, pollution we look into various ESG factors as per the integration approach in order to get a holistic view of the company. We believe that relying on ratings or quantitative screens, risks oversimplifying ESG considerations. A more careful analysis can enable investors to understand the business models and motivations of management, within the context of a company’s operating environment. This is particularly relevant in Indian markets where disclosure levels are uneven. Furthermore, engagement with investee companies can improve our understanding of the issues they face and their approaches to managing them, helping us to protect or enhance the value of our investments.

ESG analysis helps determine which companies we look at, how we assess their sustainability and, hence, how we value them. Our insights can play a final role in the investment process by capping exposure to weaker ESG situations in the form of single-stock and aggregate limits in portfolios. Avoiding companies in certain sectors is a given, but our analysis is broad reaching and we are interested in the upside return implications as well as the downside risks that we identify.

References & Disclaimers

References

Product Labelling & Riskometer

Source of Data: Axis MF Research, SEBI, Ministry of Corporate Affairs, Bloomberg.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.

While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.