Saturday, July 16, 2011

Voluntary Guidelines on Environmental Social Governance


The Ministry of Corporate Affairs (MCA) this week issued the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business (ESG Guidelines), which represents a significant and substantial effort in enhancing the protection of stakeholder interests in the corporate sector.
The concepts of stakeholder interests and corporate social responsibility (CSR) have gained importance in the Indian context more recently. The first formal initiative from the Government came in the form of the Corporate Social Responsibility Voluntary Guidelines, 2009. However, a reading of those Guidelines would suggest that they were overly broad in nature with insufficient detail to enable concrete action by companies. In the meanwhile, the debate over the Companies Bill, 2009 also raised questions of whether CSR should be made mandatory, although the current thinking seems to be to retain it as a voluntary effort.
In this context, the new ESG Guidelines do well to establish concrete measures that may be voluntarily adopted by companies to address interests of various stakeholders such as employees, customers and the environment. They suprecede the Guidelines of 2009 and revolve around 9 core principles, which are:
1. Businesses should conduct and govern themselves with Ethics, Transparency and Accountability;
2. Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle;
3. Businesses should promote the wellbeing of all employees;
4. Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised;
5. Businesses should respect and promote human rights;
6. Business should respect, protect, and make efforts to restore the environment;
7. Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner;
8. Businesses should support inclusive growth and equitable development; and
9. Businesses should engage with and provide value to their customers and consumers in a responsible manner.
Each of these core principles receives further elaboration in the ESG Guidelines. Emphasis has also been placed on the importance of corporate governance and disclosures in achieving overall stakeholder protection, a matter that some of us have called for in the past.
While the ESG Guidelines set the right tone, much would depend on the nature and extent of adoption by companies, and the manner in which they are implemented in practice. The ideals are nevertheless lofty, as this statement from the preface to the Guidelines indicate:
The Guidelines emphasize that businesses have to endeavour to become responsible actors in society, so that their every action leads to sustainable growth and economic development. Accordingly, the Guidelines use the terms 'Responsible Business' instead of Corporate Social Responsibility (CSR) as the term 'Responsible Business' encompasses the limited scope and understanding of the term CSR.
The Guidelines take into account the learnings from various international and national good practices, norms and frameworks, and provide a distinctively 'Indian' approach, which will enable businesses to balance and work through the many unique requirements of our land. By virtue of these Guidelines being derived out of the unique challenges of the Indian economy and the Indian nation, they take cognizance of the fact that all agencies need to collaborate together, to ensure that businesses flourish, even as they contribute to the wholesome and inclusive development of the country. The Guidelines emphasize that responsible businesses alone will be able to help India meet its ambitious goal of inclusive and sustainable all round development, while becoming a powerful global economy by 2020.
Hat tip: Richa Naujoks

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