The acquisition of the Anglo-Dutch steel firm Corus by Tata Steel in early 2007 is one of numerous examples of how Indian businesses are securing their position in the global marketplace.
Given this increasing overseas presence of Indian companies and the expectation that India will become the second largest global economy by 2050, the performance and behavior of Indian companies is under greater scrutiny than ever before. Within this context, Katherine Miles Hill reports on drivers and the value of sustainability reporting in India, why standardized framework for sustainability reporting is desirable and how Indian companies are advancing this practice.
Financial performance is no longer the exclusive driver for businesses. Economic, environmental and social factors are now recognized as also playing important roles. This recognition has led to companies being encouraged by internal and external stakeholders to demonstrate their performance in these areas, which has resulted in the emergence of sustainability reporting. Sometimes called “triple bottom line,” non-financial or corporate social responsibility (CSR) reporting, sustainability reporting is about disclosing information on an organization’s economic, environmental and social performance. For example, disclosures on employee benefits and compensation, greenhouse gas emissions and risks for incidents of child labor and measures taken to contribute to its elimination.
The competitive international marketplace increasingly rewards those that go beyond the legal requirements in terms of managing their economic, environmental and social impacts. As a result, international companies, including Indian companies investing overseas, increasingly practice a sustainable approach to business and undertake sustainability reporting in response to this peer pressure and the competitive international environment.
Customers, particularly those in the North American and European markets, insist that companies disclose their impacts, for example in terms of human rights. Consumers buying from Indian companies want to be sure that they do not contribute to the widespread poverty in India, where 44 percent of the population earns below US $1 per day.
Disclosure is also driven by demand from international customers. Recently, Jubilant Organosys, an Indian company that acquired two Belgian pharmaceutical companies in 2005, received customer queries about its community relations and safety issues. The company began sustainability reporting to address the demands for information from its international customers.
But it is not just to meet external demands that Indian companies are beginning to report. Business leaders are also realizing the benefits of gathering information on the company’s sustainability impacts, communicating to others their performance and demonstrating their commitment to sustainability. These measures enable companies to identify operational shortcomings, inefficiencies and potential risks. The identification of these weaknesses is the first step towards the improvement of internal systems and processes.
Tata International claims to have improved its internal processes and management systems through sustainability reporting, while Dr. Reddy’s Laboratories attributes cost benefits to an increased focus on waste minimization since they initiated their reporting process.
Sustainability reporting helps Indian companies market their products, particularly overseas but also within the domestic market. Reporting a company’s sustainability impacts can instill consumer confidence in the brand, give a license to operate and confer a competitive advantage. Dr. Reddy’s Laboratories, for example, uses the report to market the company to investors in order to influence their investment decisions.
Trust is a vital element in business partnerships, joint ventures or acquisitions, and transparency is fundamental for creating this trust among the different parties.
When Indian or foreign investors look for companies to invest in, the sustainability performance is now considered alongside financial performance because these factors are interdependent.
Sustainability reports are valuable sources of information for investment decisions and facilitating trust between the investors, vendors or partners. These reports enable organizations to recognize both positive and negative impacts, identify areas for improvement and define how it intends to address the pertinent issues.
From the perspective of investors, the greater confidence they have in a company, the more likely they are to invest. Investors have more confidence in companies that adhere to best practices in business management and corporate governance, especially in emerging markets.
In terms of attracting foreign investment, the case for reporting is clear: Indian companies can use these reports to prove that the company is well governed and worthy of investment by being transparent about the risks and opportunities related to sustainability. In the sustainability reports, Indian companies are also able to showcase their “cultural fit” and illustrate to investors why they would be suitable partners. Increasingly, company culture and ethics feature higher on the priority list as criteria for partner selection when foreign investors enter an emerging market.
The process of collecting and publishing information about sustainability performance is of limited value if companies, whether they are in India or elsewhere, fail to use a standardized approach to disclosure. In the context of a globalized world, it is vital that companies “speak the same language” to facilitate comparisons of performance over time and against competitors.
A global framework for sustainability reporting has emerged that facilitates a standardized approach to disclosure and enables the comparability and benchmarking of organizational performance. This framework, called the GRI G3 Guidelines, was developed by the Global Reporting Institute (GRI), a multi-stakeholder network and a collaborating center of the United Nations Environment Programme (UNEP), including representatives of the Indian business community. The guidelines set out the principles and indicators that organizations can use to measure and report their sustainability performance.
More than 1,250 companies in over 60 different countries have used the GRI Guidelines as a framework for their sustainability reports. A multitude of other companies use the GRI Guidelines on a more informal basis without using a GRI-based report.
The benefits of reporting are clear to Tata Steel, Reliance, ITC, Dr. Reddy’s Laboratories, and Jubliant Organosys and are increasingly recognized by other Indian businesses. Sustainability reporting is now becoming a standard practice for international companies, and as India further develops as a regional and global trade hub, Indian companies cannot afford to not report if they want to be a competitive force in the global marketplace.
