CSR disclosures form a major component analysed in the India Responsible Business Index (IRBI). Unsure what a disclosure means? We recently had a chat with Pradeep Narayanan, who heads the Research and Capacity Building at Praxis and in this interview, Pradeep explains all you need to know about CSR disclosures in India.
WHY DO COMPANIES NEED TO DISCLOSE INFORMATION? HOW DOES IT MATTER?
Right to Information is a fundamental right of each citizen. Similarly, as a Corporate Citizen, every company holds the responsibility to provide information to people proactively, especially in matters that concern communities and citizens. The success of democracy depends on people’s access to information. Without adequate information, people cannot stand up for their rights. In India, people have to fight for getting the information itself.
A system in which information is available freely would create a healthy, constructive and responsible relationship between the citizens, the state and companies. Corporate disclosures would help making companies more accountable to their communities; and there is a creation of a level playing field between communities, corporations and the government.
WHAT DO CSR DISCLOSURES IN INDIA TELL US?
While financial disclosures help understand profit and economic sustainability of a business, disclosures on Corporate Social Responsibility would help stakeholders understand the overall sustainability of a company. An investor would be keen to know not merely economic sustainability but also their social and ethical responsibility.
However, we have seen that companies are reluctant to disclose information in public domain for its stakeholders – be it their labor, partners, consumers or communities who live around their factories. CSR disclosure will push companies to disclose information and thereby make them fair, impartial and responsible.
THERE IS ALSO SOME AMOUNT OF SKEPTICISM ABOUT CSR DISCLOSURES IN INDIA. IS THERE SOMETHING THEY DO NOT REVEAL?
The National Voluntary Guidelines on Social, Economic and Environmental Responsibilities of Business (NVGs) were brought out by the Ministry of Corporate Affairs, Government of India, in the year 2011, after discussions with members of businesses, Government and the civil society. These are a purely Indian narrative and are very progressive, when we compare them with international conventions.
In 2012, SEBI made the reporting of the Business Responsibility Reports mandatory for top 100 companies listed in BSE. While the guidelines are voluntary, the reporting became mandatory. The reports are available in public domain for anyone’s consumption. However, it is significant that almost 123 companies are not submitting BRRs to SEBI on annual basis.
How good are these Business Responsibility Reports? Praxis, anchoring Corporate Responsibility Watch, has been analysing BRRs of top 100 companies for the last three years. There are three scenarios with respect to quality of reporting. The first scenario refers to such companies, which are making a lot of efforts in adhering to these guidelines and are reporting honestly in their BRRs. The second scenario is about such companies which are not yet doing much on social responsibilities but are honestly declaring in negative in their BRRs. While these are companies, who have realized the importance of the guidelines, and are trying to integrate them in their business practices, there is one more scenario, where businesses refrain from reporting and try to circumvent the questions. The objective of Corporate Responsibility Watch (CRW) is to analyse the report and assess the quality in terms of completeness.
WHAT IS AT STAKE FOR COMPANIES THAT DISCLOSE FALSE INFORMATION?
If a company is refraining from bringing its Business Responsibility information in public domain, it has potential to cause suspicion and creates a feeling that maybe it’s doing something wrong. If companies are declaring incorrect facts and figures, the communities, citizens and civil society organisations can monitor their reports and contest their claims.
The India Responsible Business Index (IRBI) relies only on company-provided data. We do not use any counter-narrative in the indexing. This does create a gap in the IRBI analysis. Yet at such an early stage, it’s good to begin by accepting the disclosures on face value and over the period move into the next stage of creating systems of validating information from companies.
HOW CAN A DISCLOSURE BE USED? WHO CAN USE IT?
Investors can use disclosures in the most powerful way. The global trend is that investors do not trust irresponsible businesses. If investments get affected, a fear in the corporations is bound to arise. Civil society, media and communities can use these reports and make a noise if they find violations of any sort. The state can monitor this information too and take action against any erring companies. Unfortunately, the Indian consumer is at a different stage and is going to take time to understand the importance of disclosures.
YOU HAVE BEEN ACTIVELY INVOLVED IN THE CIVIL SOCIETY FOR THE PAST 15 YEARS. CAN YOU TELL US HOW THE CIVIL SOCIETY IS USING CORPORATE DISCLOSURES?
Right now, corporate disclosures are in a very early stage in India. People who have issues with big companies often seek help from the civil society and approach courts to get legal redressal. As I mentioned earlier, CSR disclosures in India have been mandated by SEBI and each of the top 100 companies have been asked to make their business responsibility reports (BRRs) public. We, as civil society, want to strengthen the institution of the BRRs. If we don’t take these reports seriously, they will become redundant.
Companies need to be aware that NGOs are analysing their reports, thereby creating space for people to rate them. Usually, big companies rate NGOs when they decide where to put their CSR funding. There should be some way for us to rate companies too, not for shaming them but to help them use BRRs as learning instruments, where they become more conscious of the investments they’re making. The civil society is a watchdog of the corporate sector and it can monitor the companies on the basis of CSR disclosures.
WHAT IS THE STATE OF CSR DISCLOSURES IN INDIA? ARE THEY DONE SIMPLY FOR REPUTATION MANAGEMENT?
A company itself is not a monolith – there are divisions within each company such as PR and Sustainability departments that are very conscious about CSR. While primarily it is about the brand, there are individuals in companies who push for sustainable development. There are also some reputed brands which are doing good work for a long time without calling it CSR. And there are also some highly successful organisations that have not bothered with CSR. They’ve found ways to manage PR and media instead.
The good part is that CSR disclosures in India are now mandatory. Having said that, companies are at different stages in making their information public. There is also very little discussion about business responsibility at this stage.
Right now there is no penalty for non-disclosure, but we need to have one. Such a penalty could be enforced by SEBI or any of the Chambers of Commerce. We have to push for a vibrant SEBI and Ministry of Corporate Affairs.
The only danger here is that some companies might even be happy to pay some penalty and get away with it. The government should begin to analyse these business responsibility reports. Imagine having an index that is sanctioned by the Indian government. The corporate sector will look up to it as an authority and comply with it. We want to push for this with IRBI and make it happen.
Note: Praxis is a technical partner of the India Business Responsible Forum (IRBF). It is a development support organisation engaged in participatory research, capacity-building and advocacy.