Are Indian firms looking to build sustainable practices?8 min read . Updated: 11 Dec 2008, 09:16 PM IST
Are Indian firms looking to build sustainable practices?
Are Indian firms looking to build sustainable practices?
New Delhi: Last year, when JSW Steel Ltd saw farmers near its northern Karnataka plant were using outdated farming techniques that relied on pesticides and kept profits low, it brought in professionals, held training sessions on organic farming and carefully measured results.
Such initiatives of JSW Steel are part of a larger corporate approach to sustainability that goes beyond mere corporate social responsibility (CSR). It is about “intelligent growth", says Madhu Ranjan, a vice-president at JSW, who heads research and development at the plant in Bellary. “We are a ray of hope for all the surrounding districts, and believe development should be shared. We are making ourselves sustainable as an organization," he says.
Bringing such sustainable development into business agendas of Indian firms dates back to the United Nations summit in Rio in 1992, since when industry lobby groups including the Confederation of Indian Industry (CII) decided to walk down the path. On Friday, CII, along with ITC Ltd—India’s largest cigarette maker—will announce its third annual corporate sustainability awards, a project that recognizes firms that have migrated from Milton Friedman’s mantra of “the business of business is business" to one that includes building social and environmental credentials.
Triple bottom line
“It is a ‘triple bottom line’ report," says Suman Majumdar, senior counsellor at the CII-ITC Centre of Excellence for Sustainable Development, who has been overseeing the contest from its inception.
Majumdar identifies the three parts as economic (it goes beyond finance, and looks at how the firm enables livelihoods around it); environmental (how cleaner production and renewable energy contribute to bringing down cost of operations); and social (what a company does for workers, community and goodwill).
Nearly 60 companies in the large, medium, small and independent unit categories participated in the review, of which 40 met qualifying criteria and cleared the first shortlist. There were three levels of evaluation anchored to the European Foundation for Quality Management Excellence model, giving equal weight and importance to process “enablers" and business “results".
Teams of three-four independent assessors went on site visits of the firms in the fray, verifying facts and quizzing them on best practices. A minimum score of 40% in each of the social, economic and environmental domains was a must for contestants to qualify. The assessors assigned scores, which, along with their written summaries of the evaluations, were sent to an eminent jury.
Although India does not figure in global lists of 100 sustainable firms put out by organizations that include Corporate Knights Inc. and Innovest Strategic Value Advisors, more companies now want to create businesses that will endure.
“Large units (enterprises) are increasingly bothered about public reaction in matters of land acquisition and the need to provide tangible, continuing benefits to the neighbouring population in the form of education, health care, drinking water and anon-polluting environment," says jury member N.R. Krishnan, former secretary, ministry of environment and forests. The awards, according to Rajni Bakshi, an author and researcher who has documented sustainability-related issues and people’s movements, “are a great way of bringing non-participating companies on board". To be sure, she says, “This is the bare minimum. The challenge is in having companies work together."
Bakshi says the awards should highlight those who have succeeded in establishing new rules. A case in point is the mining sector which in the last 10 years has created certain standards and norms. “These may be violated, but at least there is a benchmark on what is acceptable and what isn’t. There is a platform where violators can be shamed, and this can be a fairly big deterrent," she points out.
Not just philanthropy
L. Ramakrishnan, regional environment coordinator, Philips Electronics India Ltd, and one of the 37 assessors, says there is still confusion about the scope of sustainability. Many companies think CSR and sustainability are interchangeable. “The distinction that corporate responsibility concentrates more on the non-financial societal activities a company contributes to while corporate sustainability focuses on both the impact of environmental factors on a company and the company’s impact on the environment is yet to be driven home," he says.
Sustainability has started to move from the fringes of the business world to the top of shareholders’ agenda. Reporting is voluntary and involves communicating to current and potential stakeholders the company’s commitment to integrity and ethical practices and to managing their environmental footprint.
Majumdar says, “More than 30 companies have been reporting on their economic, environmental and social performance by adopting the framework of the Global Reporting Initiative (GRI) guidelines." GRI is an Amsterdam-based institution that sets standards in sustainability reporting.
“While some began reporting six years ago, many initiated the process in the last three years. They are mostly from the chemical, steel, automobile, cement, electric utilities, engineering, construction, pharmaceutical, mining, and oil and gas sectors. In 2008, at least 15 companies brought out sustainability reports in India," Majumdar says.
Shankar Venkateswaran, adviser, SustainAbility.com, a US-based strategy consultancy, points out that the drivers for companies to report on sustainability could be “pressure from customers, stakeholders, investors or conforming to legislation. While these are good starting points, unless it is incorporated as a strategy...it cannot be said to be truly...enduring."
Ujjwal Kumar, general manager of human resources management at Tinplate Co. of India Ltd and CII assessor, says sustainability reporting in annual reports is being followed by companies such as Tata Steel Ltd, Hindustan Unilever Ltd, ITC and Binani Cement Ltd among others.
Ramakrishnan finds that not all companies are serious. “Few Indian companies are publishing sustainability reports and fewer still publishing annual sustainability reports. Many publish just one or more elements in their annual financial reports, but their materiality, relevance and scope remains questionable," he says. Materiality in this context is a concept in auditing and accounting relating to the importance of an amount, transaction, or discrepancy.
Measuring the success of initiatives on the ground by using meaningful data remains complex though. According to Ujjwal Kumar, “Producing information on these programmes in ways that make sense is difficult since the reporting processes are still immature, which is why you also have on the flip side a lot many companies under-reporting their initiatives and impact assessment."
PSUs’ track record
Public sector undertakings (PSUs) have had a strong presence among the past two years’ contest winners. Do they have a stronger sustainability culture than the private sector?
According to Ramakrishnan, “They have a better structure to address the...elements that make up sustainability—CSR, environment, health and safety, corruption, labour and stakeholder dialogue. So while private sector companies may have greater intent, they lack sufficient manpower or structures and formats to make sustainability a success." He finds the private sector still talks of costs rather than benefits.
Shankar attributes this to the value proposition. He says that since PSUs are built around public interest, the idea of sustainability is easier to adapt to but on closer scrutiny, it is more in the philanthropic sense for them.
For the private sector, if it doesn’t make business and economic sense, the interest in sustainability will dissipate. The real test can be seen during an economic downturn. When budgets are squeezed, those for philanthropy are usually the first to get slashed.
However, if the company sees value, say, of energy or cost saving or greater market reach, the chances are the initiative will not lose momentum. “For that reason, sustainability has to get embedded within the business model and PSUs are not really driven by this philosophy," he says.
Krishnan has concerns on this as well. He says, “Incentives such as carbon credits... have become an added attraction. For a segment of industry such as sub-contractors associated with larger units, these considerations seem to mean very little as evidenced by poor safety records in operations, workers’ welfare and non-adherence to green requirements in general."
The way forward
While pollution control or local unrest are easily understood, broader considerations of the planet’s capacity to sustain economic growth or society’s tolerance of problems such as deprivation, displacement and inequitable distribution of incomes and economic gains, in general, still elude most companies.
“The way forward would be to sharpen the award criteria," says Bakshi. “It is also critical to put out the information and some of the scores and initiatives of the participating teams in the public domain," she suggests.
CII’s Mazumdar, however, feels that “at this stage, it is important for us to safeguard the participating companies’ request for not displaying details on a platform accessible to competitors and the industry per se, though it is an eventual goal". The chamber will put up a list of winning companies on its website and a compendium of best practices that were followed by the winners in 2006. The details of winners in 2007 and 2008 will be ready for release by mid-2009.
How to develop sustainability
* Set up a sustainability council or board within the company, headed by a director of the board with members drawn from different groups—health and safety, legal, development, CSR, environment.
* Create more fora, platforms and awards that showcase best practices and encourage firms to learn from each other as also to set higher benchmarks.
* Highlight niche areas of exceptional performance in environment and energy conservation, reducing carbon emissions, creating socially useful models rather than focusing only on companies that have all elements of sustainability in place.
* Work towards creating “sustainability specialists".
* Strategize the subject of sustainability within the company.
* Introduce sustainability as a core subject (not elective) in management curricula covering technical and science aspects. The government- directed management institutes do have environmental management (just one aspect of sustainability) as a subject, but it is yet to be universally practised.
* Sustainability should not be a stand-alone function. It must have a cascading effect and for that to happen it should be built into individual key result areas.
* Investors/companies should stop business dealings with companies/ suppliers that violate sustainability norms.
* Social initiatives should go beyond philanthropy. ITC did it with its e-Chaupals in rural India; Pepsi is planning a series of activities on healthy eating habits encompassing an entire generation of users.
Aruna Vishwanatha contributed to this story.