Monday, August 20, 2012

Business Responsibility Reporting

The debate continues over the nature of the corporate social responsibility (CSR) requirements that should be imposed on Indian companies through the Companies Bill, 2011, i.e. whether voluntary or mandatory. Although the Government had proposed a hybrid approach, the Parliamentary Standing Committee on Finance appears to be keen on retaining the mandatory approach, as we had previously discussed.
While this debate continues at the legislative level, SEBI has introduced some amendments to the listing agreement that will require large listed companies to include business responsibility reporting as part of their annual reports. SEBI formalised this by way of a circular dated August 13, 2012 issued to the stock exchanges. This comes on the heels of the “National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business” issued by the Ministry of Corporate Affairs last year.
According to SEBI’s circular, the requirement to include business responsibility reports as part of the annual report is mandatory for the top 100 listed entities based on market capitalisation at BSE and NSE as on March 31, 2012. The circular contains an elaborate set of details to be disclosed, including principle-wise performance.
The business responsibility reporting is applicable with effect from the financial year ending on or after December 31, 2012 (although entities that are yet to submit their annual reports for the financial year ending March 31, 2012 may include this on a voluntary basis).
Although there are arguments in favour of disclosure and transparency as methods of altering corporate behaviour in its impact on society, it remains to be seen whether efforts such as this are likely to make a significant difference. The downside, which has been experienced in other forms of reporting, is that over a period of time certain standardized disclosures and templates will evolve that will make differentiation between companies somewhat difficult and thereby erode the significance of such disclosures.
(On a related note, here is another one in the series of critiques against CSR, particularly of the mandatory variety)


vswami said...

According to one’s understanding, the basic proposition whether or not CSR deserves to be made mandatory itself is being hotly debated, and remains to be authoritatively concluded. Moreover, the Guidelines said to have been issued by the MCA, pending giving it a reading, but going by its nomenclature, appears to suggest that the concerned Ministry, exclusively clothed with executive powers in such matters, is inclined more against the idea of making CSR ‘mandatory’. In the light of the attendant uncertainties, therefore, one is miserably confused on the propriety or otherwise of SEBI in issuing a circular that “the requirement to include business responsibility reports as part of the annual report is mandatory for the top 100 listed entities..” To be precise, the gravest doubt is, - has not SEBI acted, may not be without precedents, patently in excess of its powers, ‘jumped the queue’ (or ‘the gun’!), so to say? Should the expert answer, after an insightful consideration, be “YES”, then the binding nature of the SEBI’s circular becomes highly disputable , nay questionable- is that not so?

DigitalAsian said...

Even in the UK this debate rages. The global recession has made companies fight against further legislation on CSR.