When it comes to corporate social responsibility and environment, social and governance disclosures, pharmaceutical companies lag behind the rest of India Inc.

In contrast, the oil and gas, IT and metal and mining sectors have been leading adopters of a separate sustainability reporting practice, according to a joint report by Deutsche Gesellschaft fur Internationale Zusammenarbit (GIZ), Global Reporting Initiative (GRI) Focal Point India and Thought Arbitrage Research Institute.

In recent years, a growing number of Indian businesses have recognised sustainability reporting as a vital step toward a global economy that combines long-term profitability with social justice and environmental care.

This is reflected in over 60 per cent of BSE 200 oil and gas companies and over 40 per cent of the metals and mining and construction-related firms bringing out sustainability reports in the interest of good corporate governance and transparency.

But in spite of a large manufacturing base in India, pharmaceutical companies do not seem to have separate sustainability reporting mechanisms, with only around 10 per cent of the firms in the BSE 200 bringing out such reports.

Only a few power and financial services companies in India report on sustainability, unlike in Europe and North America, according to the report. It suggests that the financial sector can significantly influence the outcomes of the reporting landscape.

On the other hand, traditional power companies have a greater responsibility to demonstrate commitment to sustainable development, as they are among the largest consumers of finite and non-renewable resources.

Less than 40 per cent of automobile firms operating in the country engage in sustainability reporting to their stakeholders. In contrast, over 60 per cent of the IT firms in the BSE 200 come out with sustainability reports, even though this is not a sector that poses a high risk to the environment.

This seems to be because most Indian IT companies follow a global business model spread across geographies, with a significant customer base in developed economies.

It is believed that investors and customers in these economies would be more likely to base their decisions for investment or business relations on sustainability parameters, in addition to other financial and operational issues.

Govt measures

Steps taken by the Government to make corporate social responsibility and sustainable development initiative mandatory for Indian companies may increase the number of companies adopting sustainable reporting standards in future.

Among these, the Department of Public Enterprises has stipulated that public sector units should invest 0.5 per cent to 5 per cent of their net profit on CSR activities.

SEBI diktat

Another development is market regulator SEBI’s directive that listed entities should submit business responsibility report as part of their annual reports.

To start with, this initiative has been restricted to the top 100 companies, but will be expanded to other companies in a phased manner.

The Companies Bill 2011 tabled in Parliament in December last year is also a step in the right direction toward better corporate governance, seeking to make it mandatory for companies to spend at least two per cent of their profits of the previous three years on CSR, besides measures to protect minority investors.

arvind.jayaram@thehindu.co.in

(This article was published on August 5, 2012)
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