Measuring CSR and Corporate Sustainability Growth

[Dr. Sanjiv Agarwal]

 Measurement of CSR

But discharge of social responsibilities by corporates is a subjective matter as it can not be measured with reasonable accuracy. It is also a fact that shareholders and stock markets do not recognize such issues in valuation and as such these bottom lines do not form part of core economic measure for value measurement. There is, therefore, a need to establish a linkage with wealth creation to the reporting enterprise as a result of increased emphasis of corporate social reporting in annual reports. Infact, CSR should be adopted such that it can identify the actual wealth creation. Value creation for society such as social projects taken up by the company, care for the environment, employment generation, taxes paid to the Government etc. are also considered by the rating companies. 

      CSR needs to be communicated for which following four prerequisites are essential –

a)                  measurement

b)                  quality, rather then quantity (financial)

c)                  social audit

d)                  reporting

 

Measurement

Reporting                              Communication of CSR       Quality v/s. Quantity

                                                                         Social Audit

Pre-requisites for measuring CSR

Corporate Sustainability Growth

Ultimately, corporate governance is a conglomeration of the values held by the multifarious players in the society – individuals, corporates and business professionals, public institutions and the society as a whole. The existence and implementation of sound procedures to disincent those who violate the norms would create a sense of fear and would induce proper adherence to the principles of corporate governance.

The emphasis now has to be shifted from corporate governance to corporate sustainability. Corporate sustainability is an all encompassing term.

The GVC (the corporate governance and value creation rating) approach stems from the belief that good governance, over and beyond its process aspects, is fundamentally a sustainability issue – good governance should result in the creation and fair distribution of tangible benefits. But it has to be interpreted from the view point of investors. Sustainability as such is a very old connotation which means a kind of development which would improve the present generation without compromising the interests of the future.

According to an article - Corporate Governance: A Brief Account of Major Developments – L. S. Deepthi,  SEBI Bulletin, Vol. 2, No. 3, March 2004 issue, corporate sustainability is a method for creating long term shareholder value by embracing opportunities and managing risks. This means ensuring that companies have to make decisions that protect the economic health over the long term and share market performance over a short period. This implies putting investment perspectives far ahead of the short term goals. Corporate sustainability invokes an overview of companies from the social environmental and economic angle of governance. Sustainability is the balancing of the risk and opportunities in the form of externalities and efficiencies respectively.

The potential linkages between corporate sustainability activities and shareholder value are best represented in the following model –

 

 

Corporate Sustainability Model and the Value Drivers

If a company makes capital investments in sustainability keeping long term viability in mind, it is generally rewarded. On sustainability, Adam Werbach writes- “ The easiest definition is, there is environmental and green, and there is sustainability, which includes social, economic and cultural factors as well as environment”. It is frequently about philanthropy and about social licence  and is away from core business . It is about being perceived better and about giving donations to offset the bad actions . It is long term profitability. Ideally, sustainability is not just a philanthropic or a CSR activity, but it is a business activity.

Sustainability reporting is generating considerable interest around the world  and is becoming one of the basic criteria for judging the social responsibility of business organization. Today , for any large company, sustainability reporting is something that the investors and society definitely expect.

 SAIL Ltd has implemented sustainability reports in its Bhilai Steel Plant as per Global Reporting Initiatives (GRI) guidelines. Infosys Technologies Ltd.'s sustainability report maps sustainability initiatives with GRI framework and principles of United Nations Global Compact (UNGC). Bharat Heavy Electricals Limited has reported Communication on Progress under UNGC Principles.         

According to a model evolved by the Institute of Company Secretaries of India (ICSI), New Delhi, Corporate Social Responsibilities of corporations can be evaluated on the basis of following criteria:-

1)         Amount spent by company towards discharge of social obligations i.e. on amount (Rs.) and amount (% to sales)

-                      community development / social welfare

-                      promoting the interest of disadvantaged and impaired sections of society

-                      woman development

-                      sports promotion

-                      employment generation

-                      promotion of educational facilities

-                      others

2)         Initiatives taken by company in social responsibilities undertaken.

3)         Conduct of environment audit

4)         Adherence to pollution control and environmental laws and related compliances

5)         Policy to encourage diversity in employment

6)         Development of surrounding areas of project sites and benefit to local citizens from the project

7)         Afforestation and plantation of trees

8)         Employment of child labour or any of its contractors or vendors employing child labour; mechanism to prevent employment of child labour in its project

9)         Participation of employees and their families in community welfare initiatives of the company

10)       Conduct of social audit

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