India’s Updated Policy on Responsible Business – Transformational Shift or Incremental Change?
The Ministry of Corporate Affairs recently came up with the Draft National Guidelines on Social Environmental and Economic Responsibilities of Business for public comments. This post assesses macro changes that have perhaps triggered this update.
India’s National Voluntary Guidelines on Social, Environment and Economic Responsibilities of Business (NVGs) have been in effect since 2011 and is, by far, the most comprehensive policy framework on business responsibility in India. While the NVGs are voluntary, the Securities Exchange Board of India (SEBI) in 2012 made it mandatory for the top 100 companies listed on BSE and NSE to publish an annual Business Responsibility Report (BRR) based on NVGs. The reporting was further extended to top 500 companies in 2017.
Process and Timelines
The MCA initiated a process of updating the NVGs in 2015. A two-person committee was assigned the responsibility of the NVGs update process. This committee comprised of eminent experts Viraf Mehta and Shankar Venkateswaran. Several other domain experts assisted the committee in drafting the updated NVGs.
The draft NVGs were published on the MCA website on June 20, 2018 seeking public comments. The extended last date for submission of comments was September 10, 2018. MCA also organised public consultations in Mumbai, Delhi, Bengaluru and Kolkata for the same. The final revised NVGs are yet to be published.
Why is this significant?
It has been seven years since the NVGs were first published in 2011. In the last seven years there have been some significant changes in the area of responsible business making this revision of NVGs both inevitable and significant.
- Assessments of company performance as part of India Responsible Business Index on the basis of NVGs have highlighted several gaps in policy as well as practices of top 100 companies listed on BSE. A review and update of NVGs and BRR can make it a robust framework for civil society to hold businesses accountable.
- The UN Guiding Principles on Business and Human Rights (UNGPs) were launched in 2011 soon after the NVGs. The three-pillar UNGPs framework of Protect, Respect and Remedy locates the responsibility of business in a rights based framework. 21 countries have developed their National Action Plans (NAPs) on UNGPs and 32 countries (including India) are in the process of developing their NAPs. The revised NVGs will help India get closer to developing its NAP on UNGPs.
- The Sustainable Development Goals (SDGs) was adopted by the UN General Assembly in September 2015. The SDGs have set clear expectations from business and given it significant role in achieving the SDGs by 2030. India’s commitment to the SDGs will only be successfully achieved if Indian business takes rights actions. The revised NVGs can help integrate the role of business in the country’s review and reporting on SDGs.
- A number of countries have introduced legislations on supply chain transparency and human rights recently. Some notable examples of such legislations are – UK Modern Slavery Act, EU due-diligence regulation, California Transparency in Supply Chains Act, French Duty of Vigilance Law, and Australia’s Modern Slavery in Supply Chains Reporting. The 2011 NVGs does not have necessary guidelines and mechanisms on supply chain due diligence. Revised NVGs can help address issues in the opaque and unsafe informal supply chains.
- The Sustainable and Responsible Investment (SRI) market is a fast growing segment across the globe. There is also an increasing interest amongst investors in India to adopt SRI strategies. A study conducted by Oxfam and cKinetics sized the SRI market in India to be USD 31 billion (₹ 1,994 bn) in 2017. The study also found that investors want the NVGs and BRR frameworks strengthened.
What are the key changes?
The draft NVGs has several positive changes.
- The word ‘voluntary’ has been dropped from the revised draft guidelines which gives a strong indication that the revised guidelines will no longer be voluntary in nature. The revised guidelines are now being called National Guidelines on the Social, Environmental and Economic Responsibilities of Business (NGs)
- The responsibility of ensuring adoption of the NGs has been specified as the duty and responsibility of the highest governance structure of the business. Detailed guidance on adoption of NGs, measuring and monitoring performance has been provided.
- The NGs refer to its alignment with human rights and emphasises businesses to respect and protect human rights. It also recognises the role of businesses in implementation of Sustainable Development Goals in India.
- The Business Responsibility Reporting framework is much more objective with quantified indicators across all principles.
The NGs are still silent on grievance mechanisms in case of company violations. Without strong grievance mechanisms at the State and National levels which are accessible by all stakeholders including the vulnerable and marginalised the usefulness of the NGs will remain incomplete.
The NGs are expected to be finalised and published by the end of 2018. It is also expected that SEBI will begin consultations on the BRR 2.0 framework subsequently.