Following up on the recently held multi-stakeholder consultation meeting, this article reviews the draft ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ and summarizes the potential opportunities and gap areas.
IICA-GIZ CSR Initiative and the GRI recently held a stakeholder consultation on Draft National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVG). The consultation meet was designed to facilitate dialogue among companies and industry associations on adopting “Responsible Business” practices and sustainability reporting. Read on to know more about the Guidelines!
Given that public perception is increasingly firming towards business being a cause of social, environmental, and economic problems, the need of the hour is for businesses to function more responsibly and to create value for all stakeholders. 21st century businesses must integrate sustainability into the core of their business strategy instead of sidelining it to the periphery, stuck in the mold of “social responsibility” in order to have sustained competitive advantage.
As Michael Porter has said in his HBR article, “The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society.”
Why a new reporting framework?
Non- financial metrics such as those relating to environmental, social and governance (ESG) factors need to be captured by companies and thus the need for a standardized reporting framework. UN Global compact, Global Reporting Initiative (GRI) and Carbon Disclosure project are internationally accepted reporting frameworks which provide a platform for companies to disclose their sustainability practices and policies. However, till now there had been no Indian guidelines/framework which took into account the needs of the Indian stakeholders. The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVG), an initiative by Indian Institute of Corporate Affairs (IICA) and GTZ is a step in this direction.
What does NVG entail?
The process started in end 2009 by establishment of Guidelines Drafting Committee (GDC), which submitted its final recommendations of the draft NVGs to Ministry of Corporate Affairs (MCA) in November 2010.
The primary objective of these guidelines is to encourage adoption of sustainability reporting and mainstream disclosure on environmental, social and governance metrics. It is based on the premise that you can’t change unless you measure. NVG provide businesses a framework which enables them to move towards responsible decision making and urges them to adopt the “triple bottom-line” approach.
The national voluntary guidelines consist of 9 core principles, namely:
Principle 1: Businesses should conduct and govern themselves with Ethics, Transparency and Accountability
Principle 2: Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle
Principle 3: Businesses should promote the well-being of all employees
Principle 4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized
Principle 5: Businesses should respect and promote human rights
Principle 6: Business should respect, protect, and make efforts to restore the environment
Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner
Principle 8: Businesses should support inclusive growth and equitable development
Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner
These principles can be read in detail here.
Reporting Process under NVG
The guidelines can be adopted by all companies irrespective of their size or sector and are a unique, Indian version of a reporting framework which addresses the needs of Indian stakeholders. Due to their universal applicability, a special section has been included in the draft NVG on the adoption of these guidelines by the resource constrained micro, small and medium enterprises (MSMEs) to enable greater future business opportunities and to help them remain socially relevant.
NVG is flexible for companies who are already following an internationally accepted sustainability reporting framework. Such companies are not required to publish a separate report, but can map the 9 core principles of NVG to the disclosures made in their existing sustainability/business responsibility reports. Companies who have decided to adopt the NVG but don’t have the necessary capacity to furnish a full-fledged report can provide a statement of commitment to adoption of NVG to their stakeholders and furnish primary details on activities undertaken in relation to these guidelines. Companies who would like to adopt NVG to the full extent can furnish reports detailing their performance on environmental, social and governance factors based on the suggested framework
Is there a case for businesses to adopt NVG?
According to the draft guidelines there is a clear business case for adoption of NVG. Disclosure regarding the environmental, social and economic responsibilities of business has multiple benefits in terms of enhanced revenue growth and market access, cost savings, increased access to capital, better risk management and improved brand value and reputation.
• Following ethical business practices, producing sustainable goods and services, caring for employee well-being and being responsive to customer demands will lead to new customers and business partners and increased loyalty from existing customers leading to higher revenue growth and new market access.
• Increased efficiency gains across the value chain, higher worker productivity and reduced risk of litigation will bring in greater cost savings and increase profitability.
• Promoting human rights, good governance, ethics, transparency and accountability will be seen positively by NGOs, local governments and regulators thus giving a company the social license to operate.
• Being responsive to stakeholders, producing safe and sustainable goods and services, protecting the environment and supporting inclusive development make a company more attractive to investors.
• Faring well on ESG metrics will lead to better brand image and enhance the reputation of a company.
All these facets of a company will come to the forefront only if they disclose their performance on non-financial metrics in a standardized and timely manner.
Air still needs to clear on…
Though the guidelines drafting committee has stated a business case for the adoption of NVG , there are still few uncertainties which need to be addressed like-
• When the draft guidelines will be formally adopted by the government?
• What is the readiness of Indian businesses to start disclosing on business responsibility?
• Articulating the ‘tangible’ benefits of adopting the guidelines considering potential costs that companies may need to incur for reporting.
• Who would be the early adopters of NVG and would there be any special incentives for such companies? How can the adoption process be facilitated?
• Are India investors interested in companies which fare well on ESG parameters?
These are some questions to which there may be no ready answers.
However, NVG is a positive step and would help bring about awareness around the need of taking into account both financial and non-financial metrics while assessing company’s performance. It will also help bring to speed laggards like India in the area of sustainability reporting. A shift in mindset of companies is required – they need to see sustainability from an opportunity lens instead of seeing it as a cost burden and need to adopt a long term view of incorporating sustainability in their core business strategy. Hopefully the guidelines will help hasten this process.
Read more on the National Voluntary Guidelines- expert opinions and industry feedback in our upcoming articles!
The author Aparna Khandelwal is working as Senior Associate at cKinetics.
Michael E. Porter and Mark R. Kramer, 'How to reinvent capitalism —and unleash a wave of innovation and growth', Harvard Business Review January–February 2011