The need for business transparency and accountability has never been as strongly felt as it is now. This is a reflection of how the recent incidents involving the government and corporates shaped increasing stakeholders’ demand for responsible behaviour and transparent corporate reporting.
Corporate responsibility (CR), also referred to as ‘sustainability’ or ‘business responsibility’, looks at the ethical, environmental and social aspects of business beyond the financial parameters. Reporting on corporate responsibility is becoming a mainstream practice across the globe.
According to the KPMG Survey of Corporate Responsibility Reporting 2013, CR reporting is undertaken by 71 per cent of large companies across 41 countries. Similarly, the 2nd KPMG India Corporate Responsibility Reporting Survey released in December 2013 reveals that almost three quarters (73 per cent) of large Indian companies report on corporate responsibility in one form or the other.
Similarly, the Department of Public Enterprise (DPE) has issued guidelines on corporate social responsibility (CSR) and sustainability for central public sector enterprises, which sets the requirements for CR reporting to assess the overall performance of central public sector enterprises.
The Companies Act, 2013 includes CSR as a mandatory agenda item at the Board level and requires companies to report on their CSR policy, governance and initiatives along with the CSR budget spent. At the same time, markets have also responded with positive developments such as the launch of S&P BSE Greenex and Carbonex market indices, which track companies with better CR performance and disclosure frameworks. All these developments and market forces leave little choice for companies to not report on CR.
CR reporting in India largely assumes the form of limited discussion on community development and/or environmental protection initiatives as disclosed by companies in annual reports and web sites.
Based on our India survey, the number of top 100 companies that use standard frameworks to report in CR is 45. Thirty-one companies have separate reports, widely covering aspects of CR strategy, governance, targets, commitments, and performance.
Resource intensive sectors tend to report more comprehensively on CR; the IT sector is an exception, though. It is among the leading sectors in CR reporting with 100 per cent of N100 IT sector companies comprehensively reporting on CR through separate reports. On the other hand, financial services sector remains the key lagging sector.
The analysis of CR reports in India shows that many companies associate CR with resource related risks and opportunities that have a direct link to business continuity, operational costs and increased revenues.
This is a progressive trend. Opportunities such as access to capital find lesser prominence indicating that maturity among investors to integrate CR in investment decisions is still not significant. Many companies claim to have a corporate responsibility strategy in place, but reporting on goals on key material CR issues remains low. Indian CR reports have high rates of disclosure on how they engage with stakeholders but there is little disclosure on actions resulting from these engagements.
There are many encouraging results emerging from the survey. For instance, almost half of the CR reporters (49 per cent) place the ultimate responsibility of CR with the Board (or Board level committee) or CEO (or equivalent).
But relatively fewer companies have dedicated professionals or departments attending to CR, indicating that CR becomes additional responsibility for many professionals/departments apart from their core functions.
Supply chain CR impacts are gaining significance in ensuring business continuity and reporting on supply chain CR impacts is observed to be low not just in India but globally. With increasing regulatory and stakeholder pressure on companies to assume greater responsibility for value chain impacts, investments in systems to identify, measure, mitigate and report value chain impacts will need special focus.
While India has witnessed a surge in CR reporting rates in last two years, the quality of CR reports in the country is relatively lower its global peers. Indian companies should now focus on ‘what to report on CR?’ and ‘how to report on it?’ and, more importantly, ‘how best can the process of reporting be used to generate maximum value both for shareholders and stakeholders?’
Santhosh Jayaram, Technical Director, Advisory - Climate Change and Sustainability contributed to the article.
The author is Head - Governance risks and compliance services, Climate, Change and Sustainability, KPMG India.