In November 2011, India joined the small but growing number of countries that require (larger) businesses to report on sustainability issues, but what does this mean for Indian companies?
The Indian Government’s direct engagement in business sustainability began in 2009 with the publication of the ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ (NVG) by the Ministry of Corporate Affairs. However, the story of sustainability reporting predates it by seven years when Ford of India – helped by Corporate Citizenship – published the first Indian sustainability report in 2002. Sustainability reporting has grown solidly since then with a slow up-swing (26% in 2010-11) to 53 by 2011*. As could be expected reporting companies are mainly large Indian trans-nationals, Indian anchored subsidiaries of global corporations and large nationalised companies keen to show their global sustainability credentials.
-
- Corporate citizenship- India Chart
Despite the increasing number of reporters, the Indian Government’s impatience with the pace of take up of sustainability by Indian business has intensified. In 2011, this led to the introduction of the Companies Bill, 2011 (see part 1 of this blog) which obliged all large Indian enterprises to consider sustainability management. Pressure has also been firmly applied through the Securities and Exchange Board of India (SEBI) which announced in November 2011 that, “business responsibility reports”, will be required as a part of companies’ annual reporting. These reports are to be rooted in the nine principles detailed in the NVG. To begin with, the requirement applies only to the top 100 listed companies (in terms of market capitalisation) with it extending to smaller companies in phases.
National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business Principles
1: Businesses should conduct and govern themselves with ethics, transparency and accountability
2: Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle
3: Businesses should promote the well-being of all employees
4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised
5: Businesses should respect and promote human rights
6: Business should respect, protect, and make efforts to restore the environment
7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner
8: Businesses should support inclusive growth and equitable development
9: Businesses should engage with and provide value to their customers and consumers in a responsible manner
Taking the Challenge of Reporting
The NVG should present few challenges for the 53 companies currently reporting as its principles encompass commonly accepted good sustainability and reporting practices. On the other hand, debut reporters covered by the SEBI requirements (and those likely to be covered as the requirements expand) may need to make considerable adjustments to ensure their business processes are ready for disclosure. Potential pitfalls come mainly from two directions. First, managing and reporting ‘tricky topics’. Principles seven (responsible public engagement), five (the promotion of human rights) and two (whole life product responsibility) address issues that challenge even established reporters with a heritage of sustainability management. Secondly, ensuring that all aspects of each principle are managed and disclosed, for example, principle six, (‘respect, protect and make efforts to restore the environment’) may overextend less mature sustainability management systems. Both challenges are easily surmountable, particularly compared to the opportunities awaiting.
The Advantages of a Principled Approach to Sustainability Reporting
The opportunities for Indian business from ramping up sustainability reporting are numerous. Expanded transparency can enhance reputations, assure inward investors and further open up Indian business to the global market and its increasingly diverse supply chain requirements. Internally; this raised bar certainly gives clear pointers to where increased management effort is required. That said, taking a purely compliance approach could leave companies missing out on some of the deeper opportunities available. Greater transparency of otherwise unexplored externalities offers reporters the opportunity to drive new forms of value creation. Crucially this is not only cost and risk reduction, but also by building a more integrated approach, for example by bringing stakeholders, such as customers, closer to production. All the better to boost loyalty, disarm potential critics, add differentiation and ultimately create better, more valuable products.
India Shines the Light
The Indian approach offers other structural advantages. By ensuring the NVG principles overlap with existing global reporting standards, Indian companies are becoming hard-wired for international markets. The business responsibility report is also flexible in terms of form. Depending on the reporter’s preference, an individual sustainability report or an integrated report are acceptible. While for companies lacking capacity, a CEO statement of commitment to explain to stakeholders the steps the reporter is taking to adopt the nine NVG principles is acceptable. This lean approach to mandatory sustainability reporting marks an important step on the global journey to greater corporate transparency. By taking a principled approach Indian businesses are able to enjoy the benefits of embedding corporate sustainability while still being able to develop the nimble, responsive and local management approaches that more prescriptive sustainability reporting regimes are sometimes criticised for stifling.
For a full copy of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business is available here.
*Reporting data from corporateregister.com