Are businesses becoming more responsible?5 min read . Updated: 18 Sep 2017, 01:00 PM IST
26% more firms published business responsibility reports and 11% more companies published sustainability reports in FY16 than in FY15, shows study
New Delhi: Indian businesses are sharpening their focus on responsible business practices, according to the 2017 Responsible Business Rankings of the top 200 companies by sales for 2015-16, and 20 other companies.
The report, co-produced by the Indian Institute of Management (IIM), Udaipur, and business advisory Futurescape Netcoms, found that 26% more companies published business responsibility reports (BRR) and 11% more companies published sustainability reports. The study looked at information filed by companies in 2015-2016.
Four Tata group companies found a place in the top 10, with Tata Chemicals Ltd ranked No. 1, climbing five spots from last year’s ranking, followed by Tata Steel Ltd and Tata Power Co. ranked second and third, respectively. Tata Motors Ltd came in at No. 5.
Shree Cements Ltd, climbed four positions to No. 4 from last year. None of the state-run companies found a place in the top 10 in the 2017 report.
The scores were arrived at by evaluating each company’s sustainability or Global Reporting Initiative (GRI) reports, company annual reports and websites under the four parameters of governance, disclosure, stakeholders and sustainability. These rankings are based on a weighted average of these four criteria.
“We assigned a 20% weight to governance, 15% to disclosure, 30% to stakeholders and 35% to sustainability," said Utkarsh Majmudar, professor of finance at IIM Udaipur.
The study aims to derive a relation between spending and performance.
“The four criteria in the study are representative of how a business is actually run," says Namrata Rana, director, Futurescape Netcom.
Sustainable business practice is in-built in Tata Chemicals strategies, said a spokesperson for the company.
Bharat Petroleum Corp. Ltd, which was the only state-run company in the top 10 last year at No. 9, lost out in 2017 to Ambuja Cements Ltd.
Ajay Kapur, managing director and CEO of Ambuja Cements, said that the company has consistently pursued “planning and performance on the triple bottom line (environmental, social and economic aspects). In fact, all our initiatives are governed by carbon mitigation, water conservation and augmentation, waste utilization, energy efficiency, community development, corporate governance, etc."
The objective of the study was not to remain focused on Corporate Social Responsibility (CSR)-related spending only, said Majmudar.
“CSR in India is more focused on how profits are utilized and less on how profits are generated. Sustainability encompasses both these aspects," said Aditi Haldar, director, GRI South Asia regional hub.
The 2017 study aimed to measure performance of the companies based on profit generation and utilization. After all, “internal sustainability efforts on waste, water, energy and similar such factors have direct business impact because they increasing operational efficiencies as well as ensure compliance to Indian and International sustainability norms and are possibly easier to implement as well", said Rana.
As of 25 August, a total of 89 organizations released 107 sustainability reports that use or reference the GRI framework in 2016 and 2017, according to the GRI Sustainability Disclosure Database.
“A couple of years ago, there seemed to be some confusion among companies about the choice on the 2% CSR spending as per the Companies Act, versus corporate sustainability. However, many leading businesses understood it swiftly and many more are joining hands to understand and learn that corporate sustainability is about accountability alongside growth and profit making," said Haldar.
Among the key findings of the report are that in 2015-16, 47% companies had higher sustainability scores, 44% remained the same and only 9% saw a decline.
The report found that only one-third of the companies studied are signatories to global principles, and less than a third have policies on biodiversity.
But almost all have formal CSR policies in place which can be attributed to the government mandate on the issue. There was greater emphasis on building green supply chains especially when it came to conducting sustainability audits and as far as renewable energy goes, solar energy remained on the top with 60% of the companies in the study saying they invested in it and are shifting to adoption.
The report found out that areas that are internal to a company—water, energy, waste, product—saw a much higher participation when it comes to sustainability as compared to programmes for external stakeholders. Only one-third of the companies have plans in place for external stakeholders.
“Majority of CSR and sustainability efforts fall prey to short-termism. Efforts and resources are expended towards near-term benefits which may or may not align with long-term necessities. For example, planting trees is a fantastic initiative which needs to be coupled with a long-term view of reducing deforestation, finding alternative sources and thorough life cycle management of products," says Vrushali Gaud, advisor -India, International Integrated Reporting Council.
A look across industries covered in the report indicates that energy and information technology companies performed the best on governance and sustainability, with financial companies performing poorly on both parameters. Disclosures are a strong point for telecommunication services, while utilities and materials are the top performers when it comes to stakeholder management.
The report emphasized that high scores on sustainability for most companies are most likely a result of more BRRs and sustainability information being filed by companies rather than an increase in the activity itself. For example, “by small scale of operation of renewable energy, we mean that the renewable energy forms a very small proportion of total energy consumed across the companies (including the telecom sector). It is less than 10% in most companies that have disclosed the share of renewable energy in total energy consumed", explains Rana.
To become more responsible businesses, companies will have to embrace strong governance practices to be better positioned to manage emerging risks and opportunities.
“A better governance score leads to a higher responsible business score because in most cases it implies a commitment at the highest levels of the organization to a specific/responsible way of doing business," explains Rana.
So, are more company boards in India realizing that to ensure long-term competitiveness, they must enforce responsible business practices? The study is ambiguous on this account stating that ‘governance is taken seriously by companies yet a significant amount needs to be done’.
“Board and C-suite provide the governance structure that drives sustainability. Good corporate governance enables instituting policies and driving strategy that connects business and sustainability, which generates long-term value. As an example, Tata Group has a robust governance structure and a culture that empowers sustainability across all group companies. It is one of the key reasons Tata Group companies consistently rank high on these metrics. Mahindra Group is another good example of how the chairman, board and leadership team are in sync to drive long-term value creation," says Gaud.