Towards Responsible Business

The traditional approach amongst Indian companies has been to have a disparate set of ‘sustainability initiatives’ the choice and extent of which is often driven by the moral compass of the leadership. These ‘CSR initiatives’ have often been deliberately kept separate from business priorities and operations. Traditional organisations took great pride in doing charity via CSR with no business agenda. They vociferously declared it and fiercely protected the separation of CSR from business. However, while this helped towards providing unbiased support to socio-economic issues, this also dangerously served to offset any potential harm caused by the business side of the organisation.

In the past year, the greatest shift has been in this traditional mindset moving towards one where companies are seeking to incorporate positive social and environmental impact through the way they do business. They are working towards ensuring that the products or services they offer and operations are responsible towards people, the environment, and other stakeholders beyond shareholders. Any potential ‘harm’ that is already or can be caused by the organisation is being identified, quantified, and mitigated. This effort is strengthened by the push from regulatory and peer pressures to disclose corporate sustainability data through audited reports.

Organisational structure
In FY2022 several companies such as HCLTech and Bharti Airtel appointed senior sustainability heads and empowered them with teams as well as with a seat in the organisation’s governance to ensure that business is being conducted responsibly. This has led to several companies in the fiscal year considered to establish policies and protocols for sustainable business. Committees are put in place to monitor and guide the implementation of the sustainability policies within the organisation. Responsibilities are spread across a team dedicated to business sustainability either located at headquarters or across the organisation. Relevant functions such as environmental management, energy, R&D report to the business sustainability vertical. As a relic of the traditional mindset, companies’ CSR department or the foundation as case may be, is still often seen to be operating independent of the business sustainability vertical.

Business models
Several companies have established products and services with a focus on sustainability. Godrej Consumer Products conducted life-cycle assessments (LCAs) to gauge the environmental impact of 54 per cent of their key products for 5 products — Godrej No.1, Goodknight Gold Flash liquid vapouriser, Godrej Expert Rich Creme, Godrej Ezee, Goodknight Jumbo Coil—which constitute approximately 50 per cent of the revenue in India, and aims to carry out LCAs for major products that cover 80 per cent of revenue by 2025-26. The LCA is a methodology to quantify the amount of environmental impact, identify the nature of impact, and leads to the investigation of the cause of the impact. It is a crucial step towards decarbonisation of businesses. Similarly, Dalmia Bharat and Ambuja Cements are a few other companies that have chosen to offer products that focus on sustainability. On the other hand, in FY2022 Tech Mahindra planned the establishment of a new sustainability focused business vertical that would offer clients sustainability advisory services.

Transparency
In FY2022, 54 per cent companies amongst India’s largest 200 companies published sustainability reports. This includes 18 per cent of public companies and 47 per cent of private companies. The overall number of companies disclosing data on sustainability parameters in FY2022 is also substantially higher than the previous year when 41.3 per cent published sustainability reports. Further, in FY2022, India’s top 1,000 listed entities could voluntarily submit the Business Responsibility & Sustainability Report (BRSR) in place of the mandatory Business Responsibility Report within their annual financial report. The BRSR asked for a broader set of sustainability data to be measured and disclosed by the qualifying companies. The data also included Scope 3 emissions, which moved companies to work their supply chain and report their Scope 3 emissions. As a result, in FY2022, a record number of companies have measured and disclosed their Scope

1, Scope 2 and Scope 3 emissions; 45.5 per cent companies reported their scope 1 emissions; Scope 2 emissions were reported by 43.5 per cent companies; and 22.5 per cent companies reported their Scope 3 emissions.

Targets
Eight new companies -- Dr Reddy's, Infosys, Mahindra and Mahindra, Shree Cement, Tata Chemicals, Tech Mahindra, Ultratech Cement and Wipro -- amongst India’s largest 200 companies made net zero commitments using SBTi tools this year. While the effort of these companies are to be applauded, there needs to be far more companies setting scientific targets for their environmental performance. No companies used data simulations for setting their environmental and social targets. Sustainability targets whimsically pulled out are meaningless and do not represent the organisation’s best efforts to do better. Indeed, the practice of deploying scientific methods for setting credible targets is a crucial gap in India’s march towards sustainable growth.

Sustainability education
Supported by Piramal Enterprises’ promoter Ajay Piramal, FY2022 witnessed the establishment of India’s first climate-focused university offering an undergraduate engineering degree programme in climate change. While skills in this subject are scarce, India Inc has made efforts to upskill their personnel on sustainability aspects. For instance, Tech Mahindra has trained all its employees on understanding LCA. More companies need to brush aside sustainability consultants and instead build capacity within themselves to learn about business sustainability.

Is this a movement in the right direction?
While clearly in the above examples, several companies are making strides in moving towards transforming ‘business as usual’ to a ‘business that is sustainable’. However, these companies still represent a drop in the ocean. The movement is currently too small and slow. What are the reasons? First, gathering sustainability data has been a major stumbling block, more so for companies’ Scope 3 emissions. Secondly, overall policy pressure is inadequate for companies to take urgent action in this regard. Thirdly, there is a severe lack of skills in the sustainability domain and companies often are unaware of what and how to improve in their sustainability performance.

While the movement for business sustainability in India has to some extent focused on governance, it has lacked in action. Steps towards decarbonising operations and supply chain, measures towards protecting human rights, upholding employee well-being, are some of the most crucial aspects for business sustainability. Organisational structure, business model, transparency, targets, and raising awareness are the support structures to implement these aspects. While we saw the support structures come up in FY2022, we have yet to see companies substantially step up on these structures to achieve net zero emissions or substantially outperform themselves in improving the lives of people. The use of renewable energy amongst companies did not significantly increase in the specified fiscal year. Sexual harassment cases are still high in certain sectors such as IT. Across companies in all sectors that were studied, women continue to be underrepresented and paid less than their male counterparts for the same work. Slow progress on decarbonisation is also reflective of the Indian government’s net zero targets set for 2070 that do not necessarily signify an urgency for the country to reduce its emissions.

Indeed, it is important to first have the support structures in place. This itself can win companies applause from regulators and peers. Yet it is also crucial to remember that this is not enough and that the real champions will be the ones who have won the race to net zero emissions and zero social harm.