New Delhi: Business and society are joined at the hip. This connection between the two was in full view recently when the current edition of the Indian Premier League (IPL)—nothing if not a business with many crores riding on it—was blamed for its insensitivity to the drought in Maharashtra. This, despite the fact that the cricket league is not the sole cause of water scarcity in the state.

It was the perception of a threat posed by a commercial operation to society that cast a shadow on IPL—until the Bombay high court cleared the air, shifting matches out of the state after 30 April.

To explore the linkages between business and society and the associated risks, not-for-profit Oxfam India commissioned a report, Impact of Social Risks on Indian Businesses, with financial services firm KPMG in India.

Nisha Agrawal, CEO of Oxfam India, believes the report, released on Thursday, is relevant because of the increased push for economic growth by the government.

“Growth will not translate into development unless it is inclusive and takes into account the negative externalities (impact) of business operations," she explained.

The study is based on secondary data from academic and media reports and primary interviews with respondents—which includes six companies (out of the 25 from the top 100 listed on the BSE that were approached), two industry associations, bilateral aid organizations and not-for-profits (names of these have not been disclosed in the report).

The report, for instance, shows that among the companies surveyed, only 33% maintain a policy on groundwater depletion and contamination of surrounding areas.

This is just one of the 14 social risks identified and analysed in the report.

Social risks include social and political instability, crime, terrorism or civil insurgency, corruption, bribery and corporate fraud, health and safety, and human rights.

Understanding social risk

In the report, social risks have been defined as perceived/real negative impacts on and threats to individuals and communities from social changes triggered by development-related activities. The term also includes changes resulting from demographic and environmental factors like migration, which may not be under the control of any one stakeholder.

While it should be pointed out that the sample size of the companies in this study is too small to be indicative of what is happening across companies as far as business and social risks are concerned, Oxfam India clarified that since this is a perception survey, the sample size did not really impact the study.

Companies, on their part, define social risks differently. For instance, automobile manufacturer Maruti Suzuki India Ltd believes each company has internal assessment frameworks on financial, environmental and social risks.

“Any risk which has potential to impact a company’s long-term sustainability is a significant risk, including social risks," said Ranjit Singh, CSR head of Maruti Suzuki.

Yes Bank believes social risks are about the larger impact of business operations on a community, society and environment.

Shankar Venkateswaran, head of sustainability for the Tata Group, explained that the challenge in social risk assessment or mitigation is the fact that one is dealing with unpredictable human nature as opposed to money or raw material.

“That is why it is tough to estimate the extent or intensity of social risk or even the impact of mitigation actions," he said.

The intention-action gap

Increasingly, firms claim that addressing social risk is becoming part of policy because of regulations, market dynamics and increasing stakeholder pressure.

According to the report, social risk and its management, though acknowledged by Indian firms, does not translate into effective formal processes and policies.

“Companies operate within societies and they use resources of society. So if businesses don’t include communities, they don’t get the support of the communities. This, in turn, can work against the interests of businesses," explained P.R. Ramesh, chairman of Deloitte India.

ITC Ltd’s Ashesh Ambasta, executive vice president-social investments, added to Ramesh’s assessment. “Businesses cannot succeed in societies that fail."

He said ITC defines social risks based on perspectives gleaned from two of its major stakeholders—communities living around its factories and rural communities that are part of its supply chain.

In order to lower chances of social unrest and disturbances, ITC runs projects like Adarsh Gram (model village) where it tackle issues like education, health and employment, which if ignored can give rise to social discontent among these communities.

“If we have a large percentage of youth without training or skills in a particular area, there is great potential for backlash for businesses," said Ambasta, citing the example of Maoists and the unrest that follows in areas in which they operate.

But tackling social risk is not always easy for companies. As Venkateswaran explains, “The ease of resolving conflict arising out of social risks depends on the quality of the risk assessment, which in turn enables a company to be proactive in mitigation."

“Similarly, the ease of resolving all kinds of risks depends on whether a company is reactive or proactive," he added.

However, the study cites “no immediate business benefit" and “lack of institutional assistance" as the top barriers to companies addressing social risks (see graphic).

“The current approach of companies when it comes to dealing with social risks is restricted. Social risk mitigation in India is largely driven by compliance with government legislation, and the consequent reputational risks, rather than taking into account a broader set of issues," Agrawal said.

In the report, companies agreed that businesses impact socio-economically marginalised groups but only 33% of the companies surveyed had a policy on involuntary displacement and resettlement of communities.

It states that the standards and frameworks for assessing social risks are limited in India—the key one being the Ministry of Corporate Affairs’ National Voluntary Guidelines (NVGs) issued in 2011 and the Small Industries Development Bank of India’s 2014 environment and social risk management framework.

Globally there are many, including the International Finance Corporation’s (IFC) performance standard, the 2006 United Nations Principles of Responsible Investment, and the World Bank’s Social Safeguard Policies.

“NVGs or CSR (corporate social responsibility) rules are just guidelines to encourage companies to do good. These do not necessarily help a company identify, monitor and map social risks associated with their business activity," said Namita Vikas, group president and head of responsible banking, Yes Bank.

According to Agrawal, a deeper understanding of the co-relation between social risks and business is still nascent among Indian companies.

“We are yet to start putting a cost on our social and environmental impact, which would help in understanding, mapping, monitoring and measuring social risks," she said.

Agrawal added that there is a strong case for embedding social and environmental concerns in corporate strategy.

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