In India, the concept of responsible business conduct finds semblance with the Gandhian principle of Trusteeship.1 During India’s independence struggle, Gandhi introduced the concept of Trusteeship as an economic construct for the protection of human dignity instead of mere material prosperity. Under the Trusteeship principle, businesses are considered trustees of societal wealth. Businesses as trustees must act in the best interest of the society. Much like the concept of stakeholder capitalism, Trusteeship prioritizes business responsibility towards stakeholders over that towards the shareholders.
Commitment to Human Rights
The fundamental rights and freedoms enshrined in the Indian Constitution provide a robust constitutional framework to locate the responsibilities and obligations of business enterprises. Right to Equality prohibits discrimination on grounds of religion, race, caste, sex, or place of birth. Right against Exploitation prohibits forced and child labor. The Constitution also includes provisions for just and humane working conditions, maternity relief, living wages, participation of workers in managing industries, affirmative action, and environmental protection.
India is signatory to several international treaties and conventions with many exceptions such as the International Convention on the Protection of the Rights of All Migrant Workers and Their Families (2003), Collective Bargaining Convention (1981), Occupational Safety and Health (1981), etc.
Before the COVID-19 pandemic, India was one of fastest growing economies in the world. India’s annual gross domestic product (GDP) growth rate for the last decade has been over 6 percent on an average.2 India added thirty-four new billionaires3 in 2019 to attain the third spot on the global list of ultra-rich persons. However, this is in contrast with high levels of economic inequality, environmental degradation,4 high unemployment,5 and rising dissent.6 In 2019, the richest 1 percent in India held more than four times7 the wealth held by the bottom 70 percent of the country’s population.
Policy Timeline
In the last decade, India has taken several policy actions to strengthen the transparency, and accountability of businesses towards societal and environmental impacts.
In 2011, the Indian government introduced National Voluntary Guidelines (NVGs) on Social, Environmental and Economic8 responsibilities of business. The NVGs, for the first time, provided a government framework on business responsibility. The NVGs were updated to National Guidelines on Responsible Business Conduct (NGRBC)9 in 2019. Two prominent changes in the updated guidelines were – the term “voluntary” was dropped from the name and NGRBC was aligned with international frameworks such as the Social Development Goals (SDGs), United Nations Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).
In 2012, India’s securities market regulator the Securities Exchange Board of India (SEBI) adopted the NVGs framework and introduced a mandatory reporting framework, Business Responsibility Report (BRR)10 for the top one hundred companies listed on Indian stock exchanges by market value. The mandatory reporting requirements were expanded from top one hundred to top one thousand listed companies between 2012 – 2019. Recently, SEBI invited public comments on an updated BRR renamed as Business Responsibility and Sustainability Reporting11 in alignment with the changes from NVGs to NGRBC.
In 2013, a provision was introduced in the Companies Act for mandatory spending on corporate social responsibility and recognized the Directors’ fiduciary duties towards all stakeholders. More recently, SEBI introduced a Stewardship Code12 for all mutual funds and Alternative Investment Funds. It is expected that other categories of financial institutions will come under the ambit of the Stewardship Code soon.
In 2018, with the release of zero draft National Action Plan (NAP) on Business and Human Rights, the Indian government officially committed to developing a NAP by 2020. The NAP zero draft was merely a listing of relevant existing legislations and policies categorized under the three UNGPs pillars - protect, respect, and remedy. In early 2020, the Ministry of Corporate Affairs invited public comments and inputs to “inform the NAP development process.” An extensive and participatory national baseline assessment is a crucial next step for the NAP to anticipate and address key implementation challenges. As of early December 2020, the Indian NAP has not yet been launched.
Policy actions on strengthening company disclosures on environmental, social and governance factors has led to increased awareness with large companies to a large extent. Corporate disclosures are a very significant first step towards accountability and positive impact. However, disclosures alone do not translate into impact. An assessment13 of the disclosures of top one hundred companies listed on Bombay Stock Exchange between 2014 – 2016 finds shortcomings in disclosure quality and consistency. On one hand, a trend of increasing disclosures was observed on issues such as non-discrimination and corporate social responsibility. On the other hand, not much change in disclosures was observed on issues such as stakeholder engagement and transparency in supply chains.
Investing based on environmental, social, and governance (ESG) considerations has gained significant traction14 globally. The global ESG investment market is calculated to be over thirty trillion US dollars15 growing at a compound annual growth rate (CAGR) of 16 percent. In comparison, the ESG investments market in India is calculated to be around twenty- eight billion US dollars growing marginally at one-third the rate of global ESG market. Several domestic Asset Management Companies (AMCs) have introduced16 mutual funds aligned with ESG principles. Two of the major stock exchanges in India, Bombay Stock Exchange and National Stock Exchange, have both introduced ESG indices in recent years. ESG investors have a high potential leverage to influence company actions, it is perhaps too early to measure their influence on Indian companies at this point.
Ground Realities
The Indian economy is predominantly informal with over 90 percent employment in the informal sector. A significantly large part of business impact on society and environment is therefore likely to be outside the formal sector. One of the limitations of the responsible business policies in India is that these policies are designed for the formal sector leaving a significantly large part of business sector outside its direct scope.
In a stark contrast to the encouraging policy actions on responsible business front, recent changes in labor, land, environment, and agriculture laws have been criticized to be detrimental for communities and the environment. Some of these changes even contradict NGRBC principles. The Indian Parliament recently enacted four Labour Codes17 presented by the government as a historic labor reform, consolidating over twenty-nine central labor laws. Trade unions have opposed these changes in labor laws as being “anti-worker.”18 A draft notification on Environment Impact Assessment (EIA) issued by the government was criticised19 for weakening environmental regulations and designed to silence affected communities. It is important to note that existing policies on responsible business rely on self-disclosures, with a provision on comply or explain. There are no provisions to ensure or to validate implementation of the principles and disclosures.
Effective implementation and monitoring of compliance relies on front-line state capacity in the hands of local labor inspectors, pollution control officers and law enforcement agencies. The paradox of India’s well-designed policies is an elite well-functioning national bureaucracy coupled with a chaotic and dysfunctional20 local government system. Implementation of policy is significantly impacted21 due to bureaucratic overload22 and inadequate resourcing at the front-line. This weak implementation capacity often means that large parts of business operations in lower tiers, supply chains, farms and communities practically remain out of policy scope. Land conflicts have impacted23 an estimated 7.2 percent of India’s GDP and over 6.5 million people in 2018-2019. Access to remedy and justice is severely constrained due to an extremely overburdened judiciary with over thirty-four million24 cases pending in lower courts in 2020.
Way Forward
Policy contradictions, weak implementation mechanisms and an overburdened access to justice system significantly counter-productive to India’s responsible business agenda. It is important to enable the large micro, small and medium enterprises (MSMEs) to adopt NGRBC. SEBI’s new reporting framework includes a lighter reporting format for the MSME sector. Economic viability and capacity constraints of the MSME sector could impact greater adoption of responsible business policies. chains that source from MSMEs, business membership organizations and financial institutions is crucial in facilitating responsibility and transparency of MSMEs in supply chains.
Addressing policy contradictions in labor laws, environment laws, land ownership and agriculture can provide a consistent policy framework that supports sustainable development. Strengthening community consultation processes and community-based institutions can address the power imbalance between communities, corporations, and government . Empowered community collectives can better engage in negotiation processes (e.g., land acquisition, environment, and social impact, etc.) and overcome existing challenges of information asymmetry. Considering challenges of state capacity in implementing policies and legislations it is perhaps better to rely on local, participatory, a n d agile governance mechanisms. Strengthening access to justice in the context of responsible business is matter of urgency. Enhancing access to non- state- based grievance mechanisms in cooperation and collaboration with necessary stakeholders could possibly overcome the situation of an overburdened local judicial system.
Namit Agarwal is Asia Policy Lead at World Benchmarking Alliance.
For further information, please contact: Namit Agarwal, World Benchmarking Alliance, Rhijnspoorplein 10-38, 1018 TX Amsterdam, The Netherlands; e-mail: n.agarwal@worldbenchmarkingalliance.org; twitter handle: https://twitter.com/sociopreneur/; www.worldbenchmarkingalliance.org.
Endnotes
1 Y. Kesavulu, Gandhian Trusteeship as an 'Instrument of Human Dignity’, Comprehensive Website by Gandhian Institutions-Bombay Sarvodaya Mandal & Gandhi Research Foundation, www.mkgandhi.org/ articles trusteeship.htm."
2 GDP growth (annual %) - India, The World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2019&locations=IN&start=2009.
"3 Sai Ishwarbharath, “India Mints Three Billionaires A Month:HurunRichList2020,” Bloomberg, 26 February 2020, www. bloombergquint. com/ global-economics/india-is-now- home-to-most-billionaires-after- china-us-hurun-rich-list-2020."
"4 “Air pollution now biggest health risk in India, says report,” The Hindu, 22 October 2020 , www.thehindu.com/news/cities/ Delhi/air-pollution-now-biggest- health-risk-in-india-says-report/ article32912916.ece."
"5 Madan Sabnavis, “NSSO data confirms India's jobs crisis: Unemployment at 45-year high of 6.1%, way out is to make economy grow,” Firstpost, 31 J a n u a r y 2 0 1 9 , www.firstpost.com/business/ nsso-data-confirms-indias-job- crisis-with-unemployment-at-45- year-high-of-6-1-solution-lies-in- e c o n o m i c - growth-5998071.html."
"6 Meenakshi Ganguly, “Dissent Is ‘Anti-National’ in Modi’s India- Government Continues to Clamp Down on Criticism,” Human Rights Watch, www.hrw.org/ news/2019/12/13/dissent-anti- national-modis-india."
7 “Wealth of India's richest 1% more than 4-times of total for 70% poorest: Oxfam,” The Economic Times, https://economictimes.indiatimes.com/news/economy/indicators/wealth-of-indias-richest-1-more-than-4-times-of-total-for-70-poorest-oxfam/articleshow/73416122.cms?from=mdr.
8. National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business, Ministry of Corporate Affairs, Government of India, 2011, www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf.
9 National Guidelines on Responsible Business Conduct, Ministry of Corporate Affairs, Government of India, 2019, www.mca.gov.in/Ministry/pdf/NationalGuildeline_15032019.pdf.
10 Format for Business Responsibility Report (BRR), Securities and Exchange Board of India, www.sebi.gov.in/legal/circulars/nov-2015/format-for-business-responsibility-report-brr-_30954.html.
11 Consultation Paper on the format for Business Responsibility and Sustainability Reporting, Securities and Exchange Board of India, www.sebi.gov.in/reports-and-statistics/reports/aug-2020/consultation-paper-on-the-format-for-business-responsibility-and-sustainability-reporting_47345.html.
12 Stewardship Code for all Mutual Funds and all categories of AIFs, in relation to their investment in listed equities, Securities and Exchange Board of India, www.sebi.gov.in/legal/circulars/dec-2019/stewardship-code-for-all-mutual-funds-and-all-categories-of-aifs-in-relation-to-their-investment-in-listed-equities_45451.html.
13 Namit Agarwal, "Measuring Business Responsibility Disclosures of Indian Companies: A Data-Driven Approach to Influence Action," Cambridge University Press: 23 November 2017, www.cambridge.org/core/journals/business-and-human-rights-journal/article/measuring-business-responsibility-disclosures-of-indian-companies-a-datadriven-approach-to-influence-action/DAD9852706B2C1DF89E5688F4AAF0E7B.
14 Elliot Smith, "The numbers suggest the green investing ‘mega trend’ is here to stay," CNBC, 14 February 2020, www.cnbc.com/2020/02/14/esg-investing-numbers-suggest-green-investing-mega-trend-is-here.html.
15 Global Sustainable Investment Review 2018, Global Sustainable Investment Alliance, www.gsi-alliance.org/trends-report-2018/.
16 Sustainable investing: Why investing in ethically sound companies is a trend that is here to stay, 14 October 2020, Financial Express, www.financialexpress.com/market/cafeinvest/sustainable-investing-why-investing-in-ethically-sound-companies-is-a-trend-that-is-here-to-stay/2105107/.
17 See Ministry of Labour and Employment website, https://labour.gov.in/labour-codes.
18 "Labour codes passed are anti-worker, say trade unions," The Hindu, www.thehindu.com/news/national/labour-codes-anti-worker-say-trade-unions/article32680053.ece.
19 Satyajit Sarna, Draft EIA Notification is an attempt to weaken regulation, silence affected communities, Indian Express, 27 June 2020, https://indianexpress.com/article/opinion/columns/ease-of-harming-environment-6478163/.
20 Lant Pritchett, "Is India a Flailing State?: Detours on the Four Lane Highway to Modernization," Harvard Business School Faculty Research Working Paper Series RWP09-013, 2009, John F. Kennedy School of Government, Harvard University, https://dash.harvard.edu/handle/1/4449106.
21 Akshay Mangla, “Bureaucratic Norms and State Capacity in India: Implementing Primary Education in the Himalayan Region,” Working Paper, Harvard Business School Working Paper Series, 2015, www.hbs.edu/faculty/Pages/item.aspx?num=46981.
22 Dasgupta, Aditya and Kapur, Devesh, The Political Economy of Bureaucratic Overload: Evidence from Rural Development Officials in India (October 23, 2017). Available at SSRN: https://ssrn.com/abstract=3057602 or http://dx.doi.org/10.2139/ssrn.3057602.
23 Thomas Worsdell and Kumar Sambhav, Locating the Breach, Land Conflict Watch, 2020, https://global-uploads.webflow.com/5d70c9269b8d7bd25d8b1696/5ecd20dd626f166d67f67461_Locating_the_Breach_Feb_2020.pdf.
24 Sasmit Patra, “Pending Cases in Courts”, Unstarred question No. 1381, Rajya Sabha, Government of India, 2020, https://pqars.nic.in/annex/252/AU1381.pdf.