Business Case for Sustainability Reporting in India

By Priya Malebennur

A sustainability report is a measure of and communication on an organization’s performance on issues that impact its profitability.

In recent decades, organizations increasingly find that their profit and loss statements are influenced by parameters that do not feature on the balance sheet. These external parameters are "sustainability" issues that could be economic, environmental or social in nature.

Sustainability reporting gives organizations a framework to identify these sustainability issues, and to understand their impacts on its businesses. It helps an organization recognize the interdisciplinary aspects of the triple bottom line (economic, social and environmental) performance. In defining sustainability reporting as “a process that assists organizations in setting goals, measuring performance and managing change towards a sustainable global economy” and “is the key platform for communicating the organization’s economic, environmental, social and governance performance, reflecting positive and negative impacts,” the Global Reporting Initiative alludes to the dual purpose of a sustainability report – setting internal controls of sustainability in order within an organization and meeting the demands of the stakeholders through a balanced disclosure on performance. There are many factors driving organizations to report on sustainability. In order to understand if sustainability reporting is a business case or a branding exercise, the drivers for reporting must be identified. Some of the key drivers for sustainability reporting are:

Recognition of the influence of environmental and social aspects on financial performance

Indian businesses are no strangers to the fact that improved environmental performance makes economic sense. Most companies have separate departments or functions specifically to oversee environment-related concerns such as Environment, Health & Safety or Utilities. The social initiatives, on the other hand, are largely restricted to the philanthropic concerns of an organization, and remained external in perspective to the organization. There are only a handful of organizations in India that leverage CSR to achieve business objectives. A chemicals and pharmaceutical manufacturing company reports that it has been able to achieve organic growth in India in an otherwise sensitive sector as it is able to secure “local license to operate” through its sustainability initiatives.

Regulators and legislators are mandating sustainability disclosure

With the new and revised Companies Act 2013, India has become one of the first countries to prescribe expenditure for (qualifying) companies towards CSR. It further requires that companies adopt a CSR policy, constitute a board-level CSR committee for oversight and implementation, and disclose their activities. The pressure on organizations to respond to and communicate their response to sustainability concerns is increasing through legislative levers and regulatory mechanisms. With SEBI’s mandate of August 2012 on Business Responsibility Reporting (BRR) for the largest listed entities in India, there is a definite shift from voluntary to mandatory sustainability reporting. One hundred and one companies were mandated to bring out a BRR in 2013, with about half of them reporting such information for the first time publicly.

Value chain – consumers and suppliers

Consumers and customers drive the sustainability performance of an organization through their preferences and purchasing patterns. As supply chains become increasingly global, business-to-business consumers are concerned about the reputation of those with whom they do business. For business-to-consumer companies, the focus in India has been on promoting responsible usage of products to limit the life cycle impact of the product. For example, Unilever’s detergent Surf was designed to require less water, taking into account India-specific detergent usage practices. Organizations are expected to promote and be accountable for their suppliers’ sustainability practices. The GRI G4 Guidelines now require disclosure of an organization’s supply chain, applicability of material aspects to supply chain, environmental responsibility across the supply chain and social accountability across the supply chain.

Brand reputation

If an organization does not respond to the stakeholders’ concerns, it risks being non-compliant, loss of reputation and forms of social boycott, all of which have a direct impact on its business. On the other hand, if adopted in line with the business strategy, an organization can be compliant, communicate its green product portfolio and can differentiate itself from its competitors. Improved brand reputation is cited as one of the greatest benefits derived from addressing sustainability, according to a 2011 survey, amongst others including increased competitive advantage and better innovation of products and service offerings. So, even though there is a push for disclosure, in an emerging economy such as India, the maturity of the application of this information in decisions is debatable. The focus for big corporations remains philanthropy. The need to establish a social license to operate is not a novel discovery. The paradigm of aligning philanthropy and the benefits of engagement with stakeholders to business objectives is new. And, as organizations expand into international markets and as international players set shop in India, the exchange of ideas and information has been rapid. Organizations are positioning themselves for a particular cause, and consolidating their philanthropic work into specific focus areas, all in relation to their core business. The primary objective of a sustainability report, therefore, remains "to communicate" with stakeholders. Internalizing sustainability and enabling successful communication with stakeholders is crucial to reap long-term business benefits. Branding of a sustainability report is incidental. If the steps are laid with branding as a focus, there could be other significant backlash in terms of greenwashing or superficial communication. The message or positioning of an organization can be biased as a result of its sustainability objectives, and it seldom works the other way around.