This article is a reflection piece on the lack of a true business case for companies to take up an even strenuous exercise of reporting under product specific or domain specific standards in the absence of a policy mandate.
Two new corporate standards were launched in the capital last week as part of the Greenhouse Gas Protocol to empower businesses to better measure, manage, and report their greenhouse gas emissions.
Stressing the need for such standards in India, Pankaj Bhatia, Director GHG Protocol at the World Resources Institute (WRI) said “The GHG Protocol standards allow Indian companies to identify and target new market opportunities for low carbon business models and products.” The latest standards cover Scope 3 measurements as relevant to Corporate Value Chain and Product Life Cycle Accounting and Reporting.
The Corporate Value Chain (Scope 3) Accounting and Reporting Standard is aimed at helping companies in assessing the emissions of their entire value chain and identifying the most effective ways to reduce emissions. Scope 3 emissions are often missed out by corporates and these standards aim to enable tracking such emissions thus strengthening efforts for emission reductions across the entire value chain.
The Product Life Cycle Accounting and Reporting Standard is designed to help companies in understanding the full life cycle emissions of a product and therefore help identify specific efforts to reduce GHG emissions. This is a standard especially helpful in developing more sustainable products.
These standards developed collaboratively by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) were officially released in India at this launch event. The launch event saw participation from a good number of leading corporates and catalyst institutions. Though the standards seemed to be well received for their relevance, the conversation was also abuzz with concerns about the adoption and uptake of these standards by the industry.
A key part of the concern expressed by many in the audience seemed to be in context of the increasing burden on the firms to report across an ever growing number of standards. A number of Indian corporates are already reporting on a multitude of existing standards so it is apt to reflect on whether the Indian industry is ready to accept and adopt another new reporting standard.
Does Indian industry need a new voluntary sustainability reporting standard?
For starters, let us look at only the top 100 Indian companies and the number of standards/frameworks/schemes under which they are expected to disclose their sustainability related performance.
This list includes the National Voluntary Guidelines that have recently been made mandatory by the Indian Government for the top 100 companies in the country and require such firms to disclose and report their performance on environmental, social and economic parameters. Along with this, a number of companies are also adhering to the G3 Guidelines by Global Reporting Initiative which is all encompassing in nature and covers a broad range of parameters.
When companies are already reporting under an all encompassing voluntary guideline like GRI, then one wonders whether there is a true business case for companies to take up an even strenuous exercise of reporting under product specific or domain specific standards (like only carbon emissions, only energy, only GHG etc). Clearly in absence of a mandate, it seems to belie business needs.
Another important facet to consider is the resources required to report across these standards. For instance, typically it takes between two to five months to prepare a GRI specific report depending on preparedness of the corporate. With the advent of newer standards and frameworks, the burden of reporting increases for the companies and seemingly a major / reasonable chunk of time is required to be dedicated for this activity. In addition, any reporting company is expectantly over enthused to prepare the best report to stay on top of the scoreboard (this means being an A+ certified GRI report or being on top of indices like the Carbon Leadership Index, Dow Jones Sustainability Index etc.).
The time intensiveness coupled with ongoing addition of new parameters for reporting and the zeal of companies to be on top of the sustainability scorecard – makes sustainability reporting an increasingly arduous task.
The Voluntary ‘Carrots’ Approach for corporate engagement is still to catch up
The word voluntary here is the key! The wider Indian industry still seems to feel reluctant- or rather unconvinced- about putting in extra time, resources and effort in reporting under a new standard which is still voluntary in nature. Any conversation on the landscape of sustainability disclosure and reporting frameworks adopted by Indian corporates throws spotlight on Carbon Disclosure Project and Global Reporting Initiative.
Let us look at the investor driven initiative, Carbon Disclosure Project – being administered in India for the past 5 years. The process entails self disclosed carbon emissions information by the top 200 (by market cap) companies. Voluntary in nature, this initiative has seen some success with an increasing number of corporates disclosing their carbon emissions (28% rise in 2011). However, what is disheartening is that not even 50% of the top 200 companies have yet embraced the idea of disclosing their emissions. In such a scenario, a mass adoption of such emissions related or sustainability disclosure initiatives by India Inc. seems unlikely and at the very least, quite some time away.
Similarly if we look at the Global Reporting Initiative, there are about 23 companies who are currently reporting officially under the GRI Guidelines, though there are many more Indian companies who report their sustainability performance in the form of corporate sustainability reports.
A quick scan of these companies reveals 12 of these top firms are disclosing and reporting under both GRI and CDP initiatives. These 12 companies are clearly the “first adopters” that seem supportive of adopting forward looking sustainability related standards. While the drivers for their respective interventions may vary, these firms clearly gain in shaping a differentiated image and consequently a competitive advantage for themselves. Given this backdrop, it is likely that these firms may again be the ‘first adopters’ of the new GHG Protocol Standards. In addition to these “First Adopters”, a segment termed the “early movers” (comprising around 45 companies) which reports regularly under either GRI or CDP may also be receptive towards the new GHG Protocol standards.
Combined this covers less than hundred top Indian corporates and it is unlikely that any significant traction can be generated amongst other firms. If the vision of sustainability reporting and disclosure is only to target the big giants, then this voluntary approach might still work, but if the ambition is to develop sustainability reporting as a market ethic, then there is clearly a gap.
So the big question is how to move beyond such limited number of companies and catalyze reporting and disclosure as a market norm? Is the voluntary (carrots) nature of approach the reason for this gap?
Lack of basic infrastructure for measurement and reporting
For meaningful reporting to emerge, measurement is the key. What you cannot measure, you cannot report! A key concern in Indian industry is that while corporates are expected to report on new standards and frameworks (either mandatory or voluntary), the basic preparedness is lacking.
Sandeep Garg, an energy economist working with the Bureau of Energy Efficiency on the Perform, Achieve and Trade (PAT) scheme was one of the panelists at the launch event of these new GHG Protocol standards. He cautioned about the lack of preparedness for measurement and reporting primarily driven by inadequate infrastructure amongst Indian companies. Citing the example of the PAT scheme, he said that despite the mandatory nature of the scheme and clear incentives for the companies to comply, the number of companies covered and the quality of performance data availability is quite limited. Given the dismal scenario encountered in the implementation of even a mandatory scheme, the adoption and uptake of voluntary standards in a meaningful way seems still a long way off in the country.
There is clearly a mismatch between market preparedness and market ambition when it comes to Indian corporates, and the Indian industry is still a long way off from meaningful adoption of sustainability reporting standards. Industry and standards bodies will do well to reflect on ways to shape greater traction for these reporting initiatives.
While the voluntary initiatives have led to adoption by the creamy layer of Indian corporates, they have not succeeded in shaping a large scale impact across the industry participants. Secondly, there is a need for harmonization between energy reporting, GHG reporting, etc. to optimize the resource sink by the companies on providing multiple disclosures. Thirdly and most importantly, companies need to be incentivized to put basic reporting mechanisms in place that would enable them not just to report but also to track their own performance.
This article has been written by Roselin Dey from the Sustainability Outlook team.