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Business News/ Companies / Companies turning more responsible, but still a long way to go

Companies turning more responsible, but still a long way to go

The India Responsible Business Index measures 100 listed companies on five criteria to see how socially inclusive they are

Businesses need to recognize their role in creating an environment in which the rights of workers and other stakeholders, including communities throughout the supply chain are respected.Premium
Businesses need to recognize their role in creating an environment in which the rights of workers and other stakeholders, including communities throughout the supply chain are respected.

New Delhi: The World Economic Forum’s The Inclusive Growth and Development Report 2017 defines “inclusive growth" as “a strategy to increase the extent to which the economy’s top line performance is translated into the bottom line result society is seeking, i.e., broad-based expansion of economic opportunity and prosperity". 

Any business or industry is made up of various stakeholders—shareholders, consumers, suppliers and communities directly or indirectly linked to them. Increasingly, investors, government agencies and even not-for-profit organizations are pushing for the business community to be more inclusive, for it is the only way to ensure business longevity.

ALSO READ | Companies need to look beyond the definition of CSR

In an attempt to gauge how Indian firms are coping with the interests of various stakeholders, a collaborative effort of non-profits—Oxfam India, Corporate Responsibility Watch, Praxis and Partners in Change—has put together the second edition of India Responsible Business Index (IRBI), a follow-up from 2015.

“The IRBI is a tool which can be used by all stakeholders to assess a company’s performance, but most importantly for the companies themselves to self-assess and take corrective action. Several companies on the index have improved over the last one year but there is still significant room for improvement," said Nisha Agrawal, chief executive officer of Oxfam India.

The index, scheduled for release in Delhi (see ‘Methodology and Disclosures’ at the end of the story) on Tuesday (14 February), ranks the top 100 BSE-listed companies on their performance on five parameters—inclusive supply chain, community as stakeholders, community development, employee dignity and human rights and non-discrimination at the workplace.

The index states that businesses need to recognize their role in creating an environment in which the rights of workers and other stake-holders, including communities throughout the supply chain are respected.

While there are some improvements being witnessed, barely half the firms (of the total 100) have committed to inclusive supply chains. In 2015, only 40 firms extended human rights policies to their supply chain whereas in 2016 the number has gone up to 54. Other aspects of sustainable supply chain have also seen some improvement—for instance, in 2015 there were only four firms with policies on procuring raw material at fair price; in 2016 this number has gone up to nine. And in 2015, 60 firms did not have a policy on giving priority to local suppliers; this number has gone down to 39.

However, simultaneously there has been a decline in some other key aspects of company policies on inclusive supply chains. For instance, the number of firms with an explicit policy on extending company employment policy to the supply chain has fallen from 78 in 2015 to 71 firms in 2016. 

ALSO READ | Business responsibility helps risk mitigation

The few firms involved in such practices say that responsible business extends beyond the boundary walls of a company. Namita Vikas, group president and managing director climate strategy and responsible banking at Yes Bank Ltd, said that sustainable practices—be they about reducing negative environmental footprint, energy consumption or community development—have to be part of company strategy and integrated with business decisions. She cited Yes Bank’s internal indices for selecting projects that it gives loans to, which, along with financial performance, also measure the environmental, social and governance (ESG) impact of the project. 

Vikas added that while there may not be any study to show the direct link between irresponsible business and non-performing-assets (NPAs), they are interlinked. “We do know that if businesses are not responsible and responsive towards ESG challenges, there may be potential for conflict stalling of businesses and other issues that lead to NPAs," she said. 

Another key aspect of responsible business is for companies to treat communities as stakeholders (see chart 2). The coming of corporate social responsibility (CSR) rules in 2014 has increased awareness and expenditure by firms on community development, which finds reflection in the IRBI rankings.

In 2015, there were only nine firms that had held public hearings regarding project impact with communities. This number has gone up to 13 in 2016. Similarly, there were only 27 firms with a provision for conducting impact assessments in 2015; this number has gone up to 31 in 2016. But IRBI distinguishes between community development under CSR and community as stakeholders. The latter deals with companies going beyond the norms specified by the ministry of corporate affairs, which many firms are not practising. For example, 44 companies had policies on the need for impact assessment in 2015; this number came down to 41 in 2016 as per the index.

Amita Joseph, CEO of not-for-profit Business and Community, said, “It is critical for businesses to consider communities as stakeholders because businesses do not create products or services out of thin air. They use labour as well as natural resources, both of which communities have an equal stake in. Plus, in the end, the communities are also consumers."

Agrawal of Oxfam India said that this year’s index shows improvement over last year. “There are many positive signals suggesting that responsible business narrative is becoming more holistic," she noted.

She pointed out that even government legislation is pushing for more responsible practices. From the coming fiscal year (1 April 2017) business responsibility reports will be available for the top 500 companies instead of just 100.

Capital market regulator Securities and Exchange Board of India (Sebi) recently issued a notification asking the top 500 companies to voluntarily adopt integrated reporting.

Methodology and disclosures

The India Responsible Business Index 2016 is based on self-reported and publicly available disclosures of the top 100 BSE-listed firms by market cap as on 31 March 2015. The information provided has not been externally validated.  

Data from annual, business responsibility and corporate social responsibility reports, and any other company policies, published until 31 October 2016, has been used to answer 116 questions. 

The firms have been graded on five parameters: Non-discrimination at the workplace, respecting employee dignity and human rights, community development, inclusive supply chain, and community as business stakeholders.

Each company’s policy commitments have been measured against the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business. The answers were send to the firms for verification by 15 January 2017. Of the 100 firms, 33 responded. 

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Published: 13 Feb 2017, 12:30 AM IST
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