Moving towards Responsible Business and Building Credibility

There is a growing discussion and debate about how corporates- both publicly and privately held organizations- should perform in terms of their environment and social performance, besides creating value for the shareholders.

Conventionally, Corporate Social Responsibility (CSR) is viewed as philanthropic activity outside the business mainstream and mainly related to “community related issues”. It is mainly undertaken for creating brand image and sometimes to oblige certain stakeholders and is generally seen to lack in strategic approach. A recent study done on the nature of CSR projects undertaken by Indian Corporates indicates that most such efforts are related to education, HIV/AIDS, health, skill development and women empowerment. However, overall Social Responsibility or Corporate Social Responsibility needs to encompass:

•Organizational Governance
•Human Rights
•Labour Practices
•Environment
•Fair Operating Practices
•Consumer issues
•Community Involvement & Development

However, recently emerging global issues like global warming, exploitation of natural resources, violation of human rights and widening gaps between rich and poor etc. are creating the need for socially responsible behavior and sustainable development. 

The benchmark for a socially responsible organization is shifting from local and national to a worldwide dimension turning CSR into a public policy issue.

Indian Context

India Inc. has traditionally engaged in social welfare and development as a cause and purpose of their business existence. Personalities like Mahatma Gandhi and business icons like Jamshyd N. Godrej advocated the need for inclusive development and sharing wealth created with poorest of the poor.

Due to global change and emergence of United Nations Global Compact, Global Reporting Initiative (GRI) etc., more and more Indian companies are disclosing their performance (financial & non-financial) to their stakeholders and working towards making environment and social development operate in tandem with economic development. Such measures surely will go a long way in enhancing transparency and accountability in business operations and win stakeholder trust.

The Government of India through its various ministries and departments is also working towards framing legislative mechanisms for encouraging organizations to behave in a socially responsible manner. On July 8, 2011 the Ministry of Corporate Affairs issued the ‘National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business’. Recently the Department Of Public Enterprises also laid down requirements for Public sector undertakings (PSUs) to work towards CSR and Sustainable Development.

Overall there are positive trends being seen in Indian business organizations as they move towards inclusive development, transparency, accountability and responsiveness but still there is a need for a unified legislative framework and cohesive partnerships between various institutions working in the field of CSR for the benefits of Indian organizations.

Connecting Sustainable Development and CSR

According to the Brundtland Commission, “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainable Development is about businesses, development strategies, approaches and actions based on the triple bottom line viz. Economic, Environment & Social Responsibility – also called the 3-P (People, Planet & Profit) approach.

CSR definition by World Bank is “The commitment of business to contribute to sustainable economic development-working with employees, their families, the local community and society at large to improve the quality of life, in ways that are good for business and good for development.”

According to ISO 26000, definition of CSR is “the responsibility of an organization for the impacts of its decision and activities on society and the environment, through transparency and ethical behavior that:

•Contributes to sustainable development, including health  and welfare of society
•Takes into account the expectation of stakeholders
•Is in compliance with applicable law and consistent with international norms of behavior
•Is integrated throughout the organization and practices in its relationship

This implies the willing inclusion by business of social and environmental concerns in the commercial (economic) activities and their relation with their stakeholders.

CSR correlates with the social and environmental dimensions of Sustainable Development as defined by Brundtland and the model of the triple bottom line (Economic-Environment-Social or Profit-Planet-People). CSR concerns a business, a group of business, a network or a sector of activity.

Hence, CSR may be considered as a tool or a way of enabling business to move towards sustainable development.
CSR is a good way of doing business strategically & profitably.

The organization should integrate a triple bottom line approach in mainstreaming of the business and use CSR as a tool to achieve sustainable development, profitability and overall market competitiveness.  Some of the practical example are:

Environmental Aspects

•Reduce consumption of energy, water and other natural resources
•Reduce emission  of hazardous substances from process, products and services delivery
•Reduce, Reuse and Recycle
•Establish environment management system

Social Aspects

•Provide safe work environment leading to reduction in work accidents
•Involve stakeholders in business decisions that affect them
•Provide necessary trainings and career development plan to employees leading to high motivation and productivity improvement
•Fuelling innovation in process & products through effective stakeholder consultation
•Promoting diversity and human rights
•Buy from local suppliers and strive to hire locally
 
The above listed examples certainly shape direct and indirect impacts on bottom line thus improving profitability. So it is incorrect  to say that CSR is somewhat outside business and charity- rather it should be viewed and used as a strategic tool to make business good, ethical & profitable.

CSR drivers

There are multiple drivers for CSR creating positive pressure on organizations like:
•Stakeholder activism
•Political Reforms
•Governance gaps
•Crisis response
•Market access
•Investment incentives
•Supply Chain within control & influence
•Socio-economic-environment priorities

Current State in Indian organizations
There are some available standards to address individual dimension of triple bottom line e.g
Economic ISO 9001, Know and meet customer requirement

Economic
ISO 9001, Know and meet customer requirement
Environment
ISO 14001, Know and reduce impact on environment and meet regulations
Social Responsibility
OHSAS 18001, Know and reduce occupational hazards and risk to employees.
SA 8000,  Improve employee working condition and welfare
Stakeholder Engagement
AccountAbility AA 1000, Know, engage, measure and account of stakeholders
Sustainability Reporting
GRI-G 3.1, measure and report sustainability performance to stakeholders

Environment ISO 14001, Know and reduce impact on environment and meet regulations
Social Responsibility OHSAS 18001, Know and reduce occupational hazards and risk to employees.
SA 8000,  Improve employee working condition and welfare
Stakeholder Engagement AccountAbility AA 1000, Know, engage, measure and account of stakeholders
Sustainability Reporting GRI-G 3.1, measure and report sustainability performance to stakeholders

However, these are individual standards  and are implemented by organizations without shaping an internal integration with all applicable standards within the organization. There is a need to think strategically to engage diverse stakeholders for integrating and mainstreaming these aspects into the business process.

The business organizations need to build a foundation to grow in a sustainable and inclusive manner by aligning the triple bottom line principles into their business process through management systems framework.

    

 

Why validate Responsible Business practices?

Worldwide businesses are investing time and effort to undertake and demonstrate their ‘Responsible Business behavior’ and commitment while proving their responsibility to the society and environment at large. With rising stakeholder skepticism and scrutiny, companies, as responsible corporate citizens, have to maintain the highest standards of Responsible Business behavior.

In such a scenario, there is growing interest amongst corporates to use “third party assessments" to measure their contributions to their stakeholders and communities.

Stakeholder expectations on Responsible Business behavior largely revolve around the belief in fundamental human values, increasing awareness of business practices and their impact and extended purchasing considerations. The question for stakeholders nowadays is not restricted to what goods are produced, their quality and price. They are also concerned about how the goods are manufactured- are they produced keeping in view the environment, health and safety and social and ethical issues? Businesses face pressure from all angles on issues of human values and they have to demonstrate their corporate citizenship behaviors. Stakeholders want proof that corporates are conducting business responsibly, honestly, fairly and considerately. For the new age socially-aware stakeholder, corporate governance (as a concept) and auditing (as a way of measuring corporate governance), has widespread acceptance.

What do Responsible Business practices mean for a company?

Good Responsible Business practices bring in the necessary transparency in the way a company is managed. It is in an organization’s interest that it upholds the highest standards of ethics, transparency and accounting- all of which are the tenets of good corporate governance.

Increasingly, companies are adopting for third party assessments of their CSR /Corporate Sustainability / ESG Report, as the case maybe, which evidences their willingness towards public disclosure and proves their commitment to stakeholders. Such an approach benefits companies in more ways than one.

When companies go in for third party assessments, the evaluation result indicates the level:
•the organization (company) is directed, administered or controlled in a systematic way (overall management system)
•of implementation of the organization’s mission, vision, policies, goals and processes to ensure current and future business performance
•the organization addresses business planning considering all forms of risk related to the business of the company
•of the organization’s relationship with employees and other stakeholders
•the organization maintains high ethical standards and integrity
•of the organization’s performance when compared to its peers
•of transparency and accuracy of the organization’s financial reporting system (good indicator for integrity)
•the organization practices reporting in a reproducible, reliable and systematic way (overall management system)
•of the organization’s performance when compared to its peers
•of the organization’s behavior towards government, business partners and competitors concerning fair competition, anti-bribery and compliance to trade laws
•the organization manages its compliance to trade laws, fair competition and anti-bribery in a systematic way (overall management system)
•of the organization’s performance when compared to its peers

The author, Ganga Sharma is the Country Head-CSR & Sustainability Services of TUV.

Image(s) Courtesy:
Tom Raftery
Find Your Feet
HowardLake
Somar International Ltd.
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