Businesses around the world have slowly come to understand that they have a broader responsibility to society, beyond their responsibility to their investors. But in many cases, there is little evidence of this understanding being put to practice. That is where an external push becomes useful.
The Indian government’s 2011 guidelines on the social, environmental and economic responsibilities of business and the requirement for corporations to spend 2 per cent of profit after tax is unique. In 2019, when the guidelines were revised to be aligned with the UN’s Sustainable Development Goals (SDGs), it further strengthened the objectives of the government’s intent. There is now a wealth of data in corporate annual reports to analyse the impact, as well as the areas where it has been more successful. I looked at one annual report recently: a multi-divisional company operating in oil refining, petrochemicals, retail, digital services and media. Several of these areas would attract the concerns of environmental activists, and so the companies face an uphill battle to convince us of responsible behaviour.
But surely we do not want our organisations to be content with just spending a small part of their money responsibly; we want their overall behaviour to be responsible. This would include choice of technology, plant location and so on, not just digging wells in the village.
Former UN Secretary General Kofi Annan introduced in 2006 the novel idea of a ‘Global Compact’ to direct organisations to behave more responsibly. This has since been expanded to 10 principles in the four areas of human rights, labour, environment and anti-corruption. Although participation in the Compact is voluntary, the objective is holistic as it aims to influence the way in which corporations make decisions. A company hoping to join the Compact is expected to pass a board resolution to that effect, commit to governance along those principles, execute strategy accordingly and report annual progress.
This attitude is now also impacting business literature. After treating business strategy as only being focussed on competitive success, responsible behaviour has been seeping into the way strategy is taught in business schools. A recent book — Responsible Business, Kogan Page, 2018 — tries to introduce a simulator to help make responsible decisions. Written by three academics from The Netherlands, the book is about how strategic decisions can be directed to benefit what is known as the triple bottom line — people, planet and profits.
The business simulator is a mathematical model to make the strategic decision-making process objective. It helps by calculating different scenarios of the impact of sustainable investments on operational results. Yet, this model is for believers, namely, organisations already committed to incorporating sustainable practices.
Examining the 52 pages devoted to ‘sustainable growth’ in the annual report I was reviewing, I begin to wonder how much is wordsmithing and how much is true change. For instance, under the SDG of ending poverty, the company describes how it has appreciated a village leader with an award for farm innovation. I could not make the connection. Several other projects that the company describes are indeed impressive, and my comment is not to detract from its achievements. Yet, the description of its corporate governance is about following guidelines and being regulatory compliant. The question that remains is how far corporate spending on health, water, education and rural development has led to a change of heart in governance and strategy.
The writer is with Suffolk University, Boston