Top Indian businesses lack corporate responsibility strategy: KPMG
17 Aug 2011
Only 16 per cent of the top 100 (revenue-wise) listed firms in India have a corporate responsibility (CR) strategy with well defined objectives and targets in place, reveals KPMG India's Corporate Responsibility Survey 2011.
Apart from indicating that corporate reporting is nascent among leading Indian firms, the data also implies that companies may have minimal clarity when it comes to choosing projects to be involved in.
The survey covered the top 100 listed firms (revenue-wise based on results of financial year 2009-2010).
In comparison, 73 per cent of the Global 250 (world's 250 largest firms revenue-wise) companies define objectives, 65 per cent have key performance indicators related to set objectives and around 60 per cent report on such identified indicators.
Only 31 per cent of the surveyed firms publicly reported on their CR performance; of this only a quarter have systems to measure, monitor and report on such issues. For the remaining reporters, absence of a management system or framework is a concern as their CR reports may not reflect their actual performance.
Drivers for reporting
''Strengthening reputation and brand'' and ''ethical considerations'' emerged as the top drivers amongst companies reporting on CR, while ''cost savings'', ''economic considerations'', ''innovation and learning'' and ''employee motivation'' rank very low in the drivers list.
''This is in contrast with the global trends where ''economic considerations'' tops the list followed by ''innovation and employee motivation''.
Arvind Sharma, director, advisory - climate change and sustainability services, KPMG in India, said ''Most companies start with a 'me too' approach with a focus on developing a good enough report. But during the journey many realise the benefits of embedding sustainability in terms of managing stakeholder expectations, finding alternative solutions to raw materials and fuels, designing benign products and services, and so on. Many realise the business case for sustainability during the process''.
Governance of CR issues
Governance of CR issues has gained significant importance especially in light of greater expectations from stakeholders on responsibilities, ethical scams in recent times and emerging national and international legislations on CR issues.
The survey reveals that 95 per cent of the 100 companies declare governance aspects in the ''code of conduct / ethics'' section. About 71 per cent of the CR reporters have a dedicated section on corporate governance in their CR reports but only 42 per cent articulate the linkage of corporate governance to company's CR framework.
When it comes to integration of CR into the governance and risk management framework, only 15 per cent of the 100 companies have managed to integrate CR in to their governance framework and only 8 per cent have managed to embed CR into their risk management framework.
Disclosures on GHG emissions (Green House Gases footprint) Climate Change has emerged as one of the most important CR issue globally.
Pressure from the media, consumers, investors, NGOs and governments has forced the companies to consider the effects of climate change. Although it is an important issue only 23 per cent of the 100 Indian companies report on the business risk of climate change but it is interesting to observe that another 26 per cent that report on business opportunities related to it.
Only 21 per cent of 100 companies are making disclosures on their carbon footprint. It is an indication that the companies are focused on short-term goals and have not initiated focused actions towards addressing this issue in the longer term. A majority of the companies that do disclose their GHG emissions do so only for their core operations (81 per cent), and only 19 per cent include extended operations such as employee, business travel and supply chain operations in their GHG footprint.
Assurance and reporting standards
Companies are willing to seek third party opinion on their reports with 52 percent of reports being externally assured. A majority of these reporters use the Global Reporting Initiative (GRI) guidelines as a basis for reporting and the emphasis is on obtaining A+ application level rather than focusing on what is material to their operations.
It is observed that the regular reporters are slowly graduating towards using sector specific issues and matrices while developing a report and are focusing on defining materiality.
It is also observed that the reporters integrate various relevant sustainability frameworks to address a larger set of stakeholders such as UNGC principles; IFC standards on sustainable development; API/IPIECA Guidelines; and GRI G3 sector supplements.
''It is interesting to note that most reports are externally assured and find value in third party opinion, especially from professional services firms such as KPMG. This trend shows that companies are willing to change the way they run their business,'' says Mr. Sharma.
Way forward
Although corporate responsibility seems to be in the experimental phase in India as of now, KPMG expects to see a significant progress in both the number of reporters and quality of information reported, in the coming years. KPMG expects Indian reporters to focus on presenting information related to:
- Sustainability issues, challenges, dilemmas, opportunities
- Regulatory environment and fact-based information
- Information of interest to investors such as materiality of issues in financial terms, vision and strategy statements, goals and targets, etc.
- Explanation on material – issue identification and prioritisation
- Reader friendly report design
The basis of the study was a survey that captured over 50 data points from the corporate responsibility information disclosed by each company on public domain.
The information used for filling the questionnaire included public domain information from company websites, annual reports, CR reports, UNGC communication on progress (COP), communication on carbon disclosure project.
