SEBI New Market Capitalization regulations 2024 for BRSR Reporting in India

Pawan N V S
Nov 21, 2024
3 min read

Updated: Aug 26

Introduction

Regulation 34 (2)(f) of the Listing Obligations and Disclosure Requirements (LODR) Regulations (amended) of SEBI lays down the requirement for:

a) including a Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed entities by market capitalization as a part of the Annual Report, and

b) obtain reasonable assurance on BRSR Core KPIs for the top 500 listed entities by market capitalization (for FY 2025–26).

An explanation to the regulation hitherto stated that for this provision, the market capitalization shall be considered as on the 31st day of March of every financial year.

However, on 17th May 2024, SEBI revised the LODR Regulations to change basis of calculation market capitalization for the applicability of the provisions of Regulation 34(2)(f). As per the circular, the amendments with respect to market capitalization shall come into force with effect from December 31, 2024.

Summary of the amendments

The amendments can be summarized as follows:

On 31st December, the Stock Exchanges shall prepare a list of top 1000 listed entities as per market capitalization (which shall be the average market capitalization from 1st July- 31st Dec of that calendar year).
Any entity in above list shall include BRSR as a part of its Annual Report from the next Financial Year. This means, if a listed entity is in the top 1000 list as on 31st Dec 2024, it shall include BRSR as a part of its Annual Report for FY 2025–26.

This amendment has been introduced to give listed entities appearing in the list of top 1000 listed entities for the first time or after a period of cessation, adequate preparation time (3 months from 01st Jan — 31st Mar) to develop internal systems and processes for data collection and reporting. (see Case A in Figure 1)

3. Any entity among top 500 listed entities shall obtain a reasonable assurance for the BRSR Core KPIs and include it as a part of its Annual Report from the next Financial Year. This means, if a listed entity is in the top 500 list as on 31st Dec 2024, it shall arrange an independent assurance for its BRSR Core KPIs and include it as a part of its Annual Report for FY 2025–26.

This amendment has been introduced to give listed entities appearing in the list of top 500 listed entities for the first time or after a period of cessation, adequate preparation time (3 months from 01st Jan — 31st Mar) to build robust internal controls and to engage an independent assurance provider (see Case B in Figure 1).

4. Two new regulations have been added which effectively clarify that once the listed entity that has started including BRSR as a part of its Annual Report, shall continue to do so for three consecutive years even if it remains outside the threshold of 1000 listed entities. The requirement shall cease to apply only at the end of the financial year following the 31st of December of the third consecutive year of remaining outside the applicable threshold.

This means if the listed entity’s market capitalization falls below the threshold on 31st Dec 2025, it shall continue to include BRSR Report in its Annual Report for FY 2026–27, FY 2027–28, FY 2028–29. BRSR provisions shall cease to apply at the end of FY 2028–29 which is the financial year following the 31st of December of the third consecutive year 2027. (see Case C in Figure 1)

Conclusion

The erstwhile regulations of determining the market capitalization as on 31st March of the financial year for considering applicability of BRSR for the next financial year was impractical. There was no time for setting up non-financial data collection systems, upskilling of personnel and setting up governance structures. This amendment is a welcome step in ensuring that the listed entities have clarity and sufficient preparation time to build governance around BRSR.