Breaking News: CSR kills Sustainability in India

— Shashwat DC

It is often said that India is biggest test-ground or the toughest challenge-spot for any idea or product. Over the very many years, so many products and ideas made their way in India, only to be rejected and wither away. Thus from Apple products to General Motors vehicles, the biggest successes in the world have been of little consequence in India. In fact, the corollary is often propped up as a maxim, namely, if an idea or a product works in Indian space, it can work anywhere.

Take the case of corporate sustainability. In India the purpose of business, unlike the Western world, was not all about maximising shareholder value. Drawing from ambiguous karmic beliefs, companies often have individual personalities in India. Largely mapping the whims of the founder, a company can thus be socially conscious and aligned like say a Tata Group or be completely clued to maximising profits, say like a DLF. Thus, even within the same business space there seemed to be a lot of variance between the companies in the way they conduct their business, how they dissect the market and so on. Take the case of IT, the social approach of the top three players is very distinct; Wipro is focused more towards philanthropy and education, while Infosys is eager about green buildings, and TCS is gung-ho about social development. This individualism in India is unparalleled in that regards, nowhere can such a disparity be found. This variance often makes it tough for a single idea to take hold across the marketplace. Best practices be it digital marketing or green IT, they are always at the periphery for the enterprise. But one idea did manage to break through the clouds and find resonance in Indian corporate space. It was an idea called sustainability.

In the past few years, companies across different verticals like IT, manufacturing, telecom, and even automobile,  imbued sustainable practices within their business functions. While the contours of sustainability might vary from one entity to another, the overall framework is more or less the same. Thus, one company may thump support for the Triple Bottomline, while another might swear by Shared Values, in macro points they agree over the idea of conducting business in an ethical and environment-friendly manner. This realisation was largely propelled by the GRI reporting framework on sustainability that is the most popular one in India.

While the real consciousness of sustainability reporting was accelerated by the promulgation of Business Responsibility Reports (BRR) by SEBI, that mandated all the top 100 companies to mandatory list down their work on 7 social parameters. Sadly, BRR had merely become another page in the annual report. It was truly the GRI that had caught the fancy of the Indian enterprises, and there was an odd reason for it. GRI 3 reporting had a graded system (A,B,C) that reflected the sheer number of parameters the company reported on. In addition, there was the added ‘+’ that came along with external assurance. Thus, an A+ report was merely am indicator that the company had reported certain set of parameters and had it externally assured, it was not an indicator on the quality of the reports, or whether a company whose report was graded A+ was any more sustainable than say a company whose report was graded at C. Nonetheless, the grades were a big attraction for the corporate, and everyone wanted an A+, as a kind of show-off of how sustainable the particular company was. Propelled by assurance partners almost every second report in India was an A+ one, something on which the company gloated in the press release. Thus, over a period of time the number of GRI reports swelled in India, from under 100 a few years ago to over 300+ recently. This is also one of the primary reasons why the other reporting formats were not so popular, the IIRC, CDP or even the UNGC. Oddly, all these formats had to be marketed to corporates with toppings that had nothing to do with sustainability. Take for instance, I heard a story from a very senior sustainability manager or how one popular format was ‘sold’ to one of the biggest oil & gas PSU (a ‘Maharatna’ company). Since, the CMD of the said PSU was not convinced about the ‘real value’ of signing up to the dotted line, the gentleman on the other hand, told him that if he did so, the UN Secretary General, Ban Ki Moon, would love to call him on the phone and have a chat with him.  This was the proverbial carrot that was dangled in front of him, which he apparently swallowed and signed on the dotted line. So, in short the sustainability standards in India were fighting a marketing war of sorts. And GRI was A+ on all of them.

And so all was hunky-dory, with companies bringing out regular reports and in turn ingraining sustainability (by accident rather than design) into their business functions. These bulky-wordy reports were like a charter on a said company’s commitment on environmental, social and other norms. That was till last year (2014), when the government decided to ‘impel’ corporates into CSR. By redrafting the Companies Bill Section 135, a new law — CSR Bill — was enacted, which made it mandatory for companies of with net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore (read Demystifying the CSR Act to know more) to earmark 2% of their annual net profit for a set of ‘socially responsible’ actions, like education and health related issues. The government while drafting the bill was very fastidious that the set of activities that any corporate could undertake under the CSR head, were to be completely delineated from business.

Thus, now the very corporate which was voluntarily ingraining sustainability principles into business was now coerced to spend 2% of their net profit (which accounts to almost 3.14% of gross revenues) on activities that has nothing to do with business. And mind you, this 2% is no loose change either. For instance, for FY 2014-15, ONGC needs to spend some Rs. 664 crores, RIL Rs. 532 crores, and SBI some Rs. 364 crores. In fact, the top 500 firms in India are supposed to spend around Rs. 9600 crores on CSR activities. Companies are now struggling to find ways to meet the requirements of the CSR bill, putting in a team, earmarking resources and so on. Compliance always takes precedence over anything voluntary. As these firms are also primarily the ones that were at the forefront of sustainability movement, it is now not really a priority for them.

Also, while the Government was introducing the CSR clauses, there was a big change at the end of GRI too. The reporting format was upgraded to GRI 4, which kind of did away with the alphabetical grades (and rightfully so), replacing them with scientific terms like “in consonance”, “core”, “comprehensive”. The company’s press releases, which eagerly tom-tommed about a report that was A+ would not seem as exciting say if it was Core or Comprehensive. The message that GRI 4 report grades convey is just not “sexy” enough to entice new reportees.

Even sustainability honchos at various companies are grappling with the CSR backhand. From being champions of fruitful business mechanisms they are now faced with the dilemma of either to start talking of social impact or risk losing their relevance in the organisation. The spot light has already shifted from sustainability to CSR. The best indicator of the same is the amount of events and conferences that are being held on CSR in India. We now even have a few CSR awards being announced, even before the real impact of the CSR Bill kicks in. At an event recently, I was even privy to a pitch on how GRI 4 actually helps in CSR reporting and so on.

There are basically three reasons why CSR is steadily replacing ‘sustainability’ in India. First, it is very simple to do. Unlike the complexity of sustainability, which requires definition of materiality, stakeholder engagement, interventions and actions, for CSR all you have to do is make a cheque for someone to build toilets. Secondly, CSR also makes you look very good, as a socially responsible corporate, providing a whole lot of photo-ops, unlike sustainability which is just about better business. And finally, with a government that has a set agenda, spending money on its flagship programs makes much better business sense than investing on environment for the future. I have heard of accounts where bureaucrats are calling company heads asking them to make a contribution for Swacch Bharat Abhiyaan, by building toilets, etc. Not surprisingly, all the top corporates from Tatas to Bharti Group, are all eagerly building toilets. All this has taken the steam out of the sustainability engine for the moment.

In this new scenario, companies that were doing sustainability reporting will be disinclined or just do so from habit, whereas the new ones are only looking at CSR provisions at the moment. Reporting format like GRI, which had gained ascendance, will now go through a cooling phase. In short there is a definitive churn in the Indian corporate space. Over the past few years, sustainability had taught the corporates the difference between philanthropy and business mechanisms. It had proven to them that investing in environmental and social activities also were good business practices that had a definitive payback period. With CSR taking precedence, it is kind of coming to a full circle, where corporates are now back to making cheques for building toilets. Will sustainability be able to sustain itself through the onslaught, is something which we will know in the coming months. It is sort of an existential crisis for sustainability at the moment in India. Many (including myself) eagerly await the results in the days to come.