Interview: Tax incentives will catalyze corporate action on Sustainability, says senior industry expert

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Dr. Uddesh Kohli, Chairman Emeritus – Construction Industry Development Council and Senior Advisor to the UN Global Compact shares his views on the role of policy and voluntary guidelines as a driver for sustainability amongst Indian corporates.

In addition to being Senior Advisor to the UN Global Compact, Dr. Uddesh Kohli is presently the Chairman Emeritus, Construction Industry Development Council (CIDC) and Chairman of Construction Industry Arbitration Association (CIAA) and Engineering Council of India. He is also Secretary General of International Training & Development Organisation (IFTDO). He is former Chairman & Managing Director of Power Finance Corporation (PFC) and former Adviser, Planning Commission (Government of India). Dr. Kohli has a unique combination of educational qualifications- a First Class First Hons. Degree in Engineering (IIT, Roorkee), First Class First Post Graduate in Management (Manchester) and Ph.D in Economics (Delhi School of Economics)
What is the role of policy in advancing sustainability in businesses?
Government policy has an important bearing on the long term thinking of the corporates. In December 2009 the government had come out with voluntary guidelines on CSR and had requested the corporate sector to adopt those guidelines. It did help in enhancing the thinking process of corporates and policy had a positive role to play. But an area where government policy has already been announced is with regards to PSUs by issuing guidelines which make it mandatory for them to invest in activities related to sustainable development and CSR. The same has also been included in their targets.

We should divide the drivers of sustainability into two parts – one is policy which encourages such investments and second is regulations which has legal implications and makes it mandatory to follow certain guidelines.  Regulation is driven by the government and not the corporate sector. It is not necessary that everything is made a law as sometimes it is counterproductive and companies find ways of circumventing the regulation. What’s required more is firm commitment from corporates towards sustainability and policy should encourage that commitment.

How do PSUs feel about the CSR clause in the Companies bill (2009)? Is the investment being perceived as philanthropy or as impact investment?
Public sector enterprises have had a very positive reaction to this bill.  They have come up with ideas to meet their targets.  Companies do not perceive their CSR and sustainability related investment to be charity but instead a positive action which can have a significant impact both on business and environment. Also, companies are more interested in taking action on their own instead of outsourcing it to an NGO as ultimately they have to plan and monitor their investments.

SEBI guidelines which are applicable for listed companies also have a section on corporate governance and sustainability. Such guidelines and policies also act as drivers to encourage positive action towards business sustainability.

However in my personal opinion, rather than forcing companies to spend a certain percentage of their profits or revenue on CSR related activities, a better mechanism would be to provide incentives. These could be in the form of tax savings on money spent on CSR activities. In its current form, it will be difficult to monitor investments made by companies as a part of CSR. Parameters would have to be set to measure their scope and a mechanism would have to be found to penalize companies who don’t make the desired investment. Tax incentive system would be easier to implement and would bring results. It also goes in line with the thinking of companies and will act as an encouraging tool rather than a forcing mechanism.

Do you think corporates can work towards sustainability only due to drivers such as policy/legislation, or do you feel companies are also taking up voluntary initiatives on their own?
These days companies are undertaking investments on account of their own initiative and acting as thought leaders without necessarily being driven by government regulation. Several voluntary initiatives exist such as UN Global Compact, GRI, SA 8000 etc. UN Global Compact includes principles in the areas of human rights, labour, ethical working, environment and sustainability and encourages affirmative action for community aligned with the broad goals of the UN. Around 250 Indian businesses have participated in this initiative to date.

ISO is coming up with a new standard, ISO 26000 which includes CSR and sustainability. Like the previous ISO standards, companies would want to conform to this standard also. Such guidelines are more voluntary in nature (compared to government regulations) and help companies formulate their policies and agenda and give them a global platform which helps in building brand image. Such voluntary initiatives also lead to increased consciousness amongst corporates. Moreover, consumer preferences are tilting towards companies who are leading in CSR and sustainability. For these voluntary initiatives, the civil society plays the role of monitoring and assessing the veracity of information provided by the signatories.

Also, a recent phenomenon which is acting as a driver for sustainability related initiatives is the need for land. Nowadays land is not easily available as it leads to conflict with community and environment in certain areas. Companies who want to avoid this problem of land are thinking of taking community based and environment related initiatives to gather support from local stakeholders and overcome the problem of land acquisition.

What in your opinion are the challenges of urban sustainability? What steps need to be taken to ensure a sustainable growth process?
We all recognize that there is rapid pace of urbanization. The coming census will give a clear picture of the quantum of growth. Large cities are known magnets but now even smaller cities are attracting migrants from rural areas. Given this scenario, there is much more pressure on urban infrastructure (water supply, drainage, waste management etc.). Also, there exists scarcity of natural resources and every country has to take steps such as conservation, efficient use, recycling etc. for resources optimization. Problem relates to implementation of these measures which is why we are not able to see the desired results.

There has to be a concerted effort towards sustainable urban development. In my view, it is necessary to bring about corporatization of the local government bodies like the municipal corporations and find ways of involving the private sector to improve the urban infrastructure services so that urban growth is sustainable.  Emphasis on the functioning of local governing bodies has been less and their focus has been on short term goals instead of long term ones. For example the government launched the Ganga action plan to make the river pollution free. One of the main causes of river pollution is urban waste. However, despite the action plan being in place, the pollution levels are still going up. I believe that all governing bodies (including central and state government) should work together along with the private sector to develop infrastructure services in a quicker and more efficient manner.

It is becoming imperative for our own survival for India to follow a low carbon growth strategy. What in your opinion are the key steps required to do so?
Most important step is building awareness and consciousness amongst all. In order to adopt a low carbon growth path we need more concerted planning, work on strategies, set goals and involve various institutions – government (central and state, local governing bodies), corporate sector and NGOs. It has be a coordinated effort because a problem with several agencies working together is that sometimes there is cross working and the desired results are not achieved. The focus should be on results and we need to have a system of rewards and punishment based on the results. The Indian judiciary system is very conscious and is helping in promoting the cause of sustainability and creating an encouraging environment. I am hopeful that the 12th five year plan will have certain strategies and schemes in place which promote the case for sustainability.

What is your view on India’s stance on Climate change? We have adopted carbon intensity as a measure.
It is difficult to comment on what will be India’s official stance of climate change. But the talk around climate change and related policy has generated a lot of consciousness amongst corporates. Many companies now talk of measuring carbon footprint and taking steps to reduce it, becoming carbon neutral etc. Irrespective of law, it has generated awareness and interest to do their bit for the climate. Government has to work out with planning commission and various ministries the steps to reduce our carbon intensity. I am expecting that in the 12th five year plan there would be some measures around promoting this. More important is the fact that there is increased consciousness in corporate sector which is a positive development. Also, there exists considerable interest around CDM and carbon credits and I hope the system continues even after the Kyoto Protocol expires in 2012. Such incentives encourage action and should exist at a national level also. Government policy around climate change has to be backed with incentives and provisions which would lead to positive actions from all.

This interview was conducted by Roselin Dey from the India Carbon Outlook editorial team.

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Author: Roselin Dey