Enabling value-chain emissions reporting through capacity building

The past decade has seen a rise in corporate disclosures on greenhouse gas (GHG) emissions, driven by investor demand and mandated disclosure regimes.¹ With the declaration of national climate goals, investor expectations and domestic regulations also encourage companies to cut their emissions.² Globally, so far, about 1,173 companies have declared net-zero targets. In India too, 22 companies have pledged net-zero targets, with more expected to do so in the future.³ Net-zero transitions require companies to address direct (scope 1) as well as indirect GHG emissions (scopes 2 and 3) across their operations. Importantly, to match corporate net-zero pledges to actual performance, transparent and accurate emissions disclosures (across all three scopes) is vital.

In 2023, the Securities and Exchange Board of India (SEBI) announced the ‘Business Responsibility and Sustainability Reporting (BRSR) Core’ format, which mandates the disclosure of scope 3 emissions for the top 1,000 listed entities over a gradual glide path.⁴ However, in December 2024,⁵ SEBI deferred the mandate to FY2026, to provide listed companies and their value-chain partners with more time to adapt, and avoid unintended impacts in terms of cost and compliance requirements. ⁶

The BRSR Core will require large corporates to gather data on their scope 3 emissions from their value-chain partners, which comprise several Small and Medium Enterprises (SMEs).⁷ However, SMEs may struggle to provide such data owing to their limited financial resources and literacy around emissions estimation and reporting.⁸ Currently, scope 3 reporting is sparse — only about 27 per cent of the top 1,000 companies voluntarily disclosed their scope 3 emissions for FY2024.⁹ To operationalise the BRSR Core mandate, it is important to build the capacity of value-chain partners, particularly SMEs, to estimate their emissions.

Existing disclosure framework for SMEs 

SEBI has a ‘BRSR Lite’ format that seeks to encourage entities (outside of the top 1,000 mandate) to undertake voluntary disclosures.¹⁰ This can be a useful tool for value-chain partners to gain familiarity with sustainability reporting. The environmental metrics under BRSR Lite cover aspects such as energy consumption, water consumption, air emissions, and liquid discharge. While independent, these have logical linkages with schemes like the government's ‘Zero Defect Zero Effect’ certification, which provides SMEs with financial support and handholding for improvements in environmental performance,¹¹ thus incentivising reporting on relevant indicators.

The format, however, misses a key indicator by not featuring GHG emissions reporting (either in terms of absolute emissions by scope or in terms of emissions intensity). This is a gap in the framework, since such an indicator can encourage SMEs to measure and disclose their emissions. This in turn can help large corporates report emissions across their value-chain under BRSR Core. Crucially, addressing this gap can help link voluntary SME disclosures through BRSR Lite with the broader disclosure requirements for large corporates under BRSR Core. As things stand, in the absence of such a linkage, several large Indian corporates, such as Tata¹², Mahindra¹³, Hindalco¹⁴, and Godrej¹⁵, have adopted global disclosure standards for GHG emissions reporting (including scope 3), and developed their own policies to equip their value-chain partners with the capacity to report emissions.

Strengthening voluntary disclosure frameworks for SMEs is crucial to support transparency across supply chains, and helps large corporates trace, report, and address their scope 3 emissions — thereby, also enabling their net-zero transitions. Certain jurisdictions, such as the European Union¹⁶ and Malaysia¹⁷, as well as global non-profits¹⁸, have been proactive in developing voluntary disclosure frameworks for SMEs, and have seen some success in this regard.^19,20 They offer useful lessons on how value chain disclosure capacity can be enhanced, as discussed below.

Strengthening BRSR Lite 

The Indian MSME sector comprises 59.3 million firms²¹ that emit approximately 150-200 million tCO₂e of GHGs annually²² — accounting for about 6 per cent of India’s total emissions (3 billion tCO₂e)²³. Further, the sector also accounts for about 46 per cent of India’s exports,²⁴ and, thus, in addition to value-chain reporting, is likely to be indirectly exposed to emissions tracing protocols under carbon border taxes in the near future. For instance, SMEs in the steel sector are involved in the production and export of several finished steel products. While large players in the sector are likely to be more adept in adjusting to the reporting requirements of carbon border taxes in the near future, SMEs may struggle to fulfil the requirements.²⁵

How can BRSR Lite be enhanced to equip SMEs to better tackle such global emissions-reporting mandates, and make their disclosures more useful for their larger corporate value chain partners?

A) SEBI should consider incorporating an indicator on scope 1 and 2 emissions in BRSR Lite: Since BRSR Core requires large corporates to gather emissions data from their value-chain firms (which account for their scope 3 emissions), incorporating scope 1 and 2 emissions under BRSR Lite would make a good starting point to enable value-chain reporting. Voluntary reporting formats across other jurisdictions (EU and Malaysia) also encourage SMEs to disclose their scope 1 and 2 emissions. Introducing indicators on GHG emissions can help SMEs understand emissions tracing for production processes, encourage disclosures, and ultimately facilitate reporting by large corporates. Additionally, SMEs undertaking sustainability disclosures may gain a competitive advantage, as it would strengthen their suitability to be a part of large corporates’ value chains.²⁶ Further, the experience of emissions reporting shall be relevant from the perspective of compliances under carbon border taxes as well. 

B) Capacity-building for the SME sector: The lack of awareness around sustainability reporting, coupled with limited financial and technical resources, limits disclosures by SMEs. Cohesive capacity-building initiatives for SMEs, as listed below, are thus the need of the hour. 

• Who should undertake capacity-building for SMEs?
• Capacity-building programmes for SMEs can be undertaken through two channels. Firstly, SMEs can be engaged directly through workshops conducted by institutes such as the National Institute of Securities Markets (NISM), SEBI’s capacity-building institute. Such programmes can also potentially engage large corporates, who can participate alongside their value-chain partners. For instance, Capital Markets Malaysia launched an ‘early-adopter programme’ where select large companies and their supply-chain partners were voluntarily on-boarded for capacity-building. The programme included in-person training, regular guidance on upcoming developments, sectoral recommendations, and tutorials.²⁷
• Capacity-building can also be driven by large companies for their value-chain partners through targeted programmes and clear guidance on sustainability reporting. For instance, Aditya Birla Fashion and Retail Ltd (ABFRL) released circularity guidelines and training programmes for their textile and apparel SMEs in 2024, in collaboration with GIZ.²⁸
• While regulator-driven capacity-building programmes can train SMEs on compliance, those driven by corporates can help the SMEs tailor their reporting as per sector-specific needs.  
• Whom to target through capacity-building initiatives?
• While large corporates have vast value chains that engage several thousand SMEs, the proportion of ‘significant’ value-chain partners²⁹ is small. For instance, Mahindra had over 3,700 primary suppliers in FY2023, but only 627 qualified as significant suppliers.³⁰ Similarly, Hindalco reported 12,000 tier‑1 suppliers in FY2024, of which 129 were significant suppliers and accounted for 90 per cent of the company’s total procurement expenditure.³¹ By initially focusing capacity-building initiatives on significant value-chain partners, large corporates can tackle the problem more effectively, without ballooning training costs. Such a focused approach can also help the large corporates meet the BRSR Core requirement of reporting for 75 per cent of their value chain.
• What to cover through capacity-building initiatives?
• Capacity-building is primarily required to ensure that (i) SMEs estimate emissions correctly using appropriate methodologies, and (ii) SMEs report emissions regularly. Training sessions and modules can familiarise SMEs with both components, as well as build the pathway from estimation to reporting. Guidance notes and sample calculation formulae can be developed in alignment with globally accepted guides for credibility and synergy.³²

Conclusion

The emissions footprint of the SME sector as a whole are sizable at present, and the lack of sustainability-related considerations in their operations may pose growth challenges for them. The purpose of voluntary disclosures is to mainstream sustainability reporting among small firms and train them for a fast-changing landscape. The lack of an indicator on GHG emissions in BRSR Lite is a missed opportunity in this regard. SMEs need to be encouraged to make sustainability disclosures, and augmenting current frameworks to amplify the relevance of such reporting can be one way of doing this. Including emissions reporting in BRSR Lite will create a natural linkage between it and BRSR Core, ultimately enhancing the utility of BRSR Lite itself.