Top 100 Companies Lag Behind In wp Spend & Disclosure

Top 100 listed Companies need to pull up their socks when it comes to their wp spend as well as being accurate with disclosures in their Business Responsibility Reports (BRRs) according to findings by two reports that have been published recently. A report by Deutsche Gesellschaft für Internationale Zusammenarbeit (GiZ) in collaboration with the Indian Institute of Corporate Affairs (IICA), says that Indian businesses spend an average of 1.4% of profits after tax (PAT) as wp. This is lower than the 2% of net profits before tax expenditure mandated by the Companies Act, 2013. And another report by the ‘Corporate Responsibility Watch’, a coalition of 8 NGOS and led by Praxis Institute for Participatory Practises says poor disclosure is a major impediment in ascertaining the accuracy of Business Responsibility Reports. Product life cycle sustainability, for example has the poorest disclosure followed by those with regards to respect for Environment, employees’ well being and inclusive growth in the BRRs filed by the top 100 listed Companies.

The Ministry of Corporate Affairs had come out with the National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business in August 2011. These guidelines contain comprehensive principles to be adopted by Companies as part of their business practices and a structured Business Responsibility Reporting format that requires certain specified disclosures, demonstrating the steps taken by Companies to implement the said principles. The requirement to include BR Reports as part of Annual Reports was made mandatory for top 100 listed entities based on market capitalization at BSE and NSE as on March 31 2012. BSE and NSE independently drew up a list of listed entities while other listed entities could voluntarily disclose BR reports as part of their Annual Reports. The findings of both the reports being cited here analyze the BRRs by companies in their first reporting cycle starting 2012-13.

In terms of wp spend the lowest contribution was from the telecom and media sectors (only 0.4% of profits), while the highest was by the housing sector (3.5%) followed by metal, metal products and mining (2.3%) and cement (2.2%) sectors clearly signifying a major need to amp up wp expenditure.

While the report by Corporate Responsibility Watch focuses on the significant issue of Disclosure – a ‘pivotal feature of market-based monitoring of corporate conduct’. Recent studies show that in countries with large and active equity markets, disclosure has been a powerful tool for influencing the behavior of companies, protecting investors, attracting capital and maintaining confidence in capital markets. The national voluntary guidelines consist of 9 core principles for the Social, Environmental and Economic Responsibilities of the Business. Companies need to provide their declaration/report on their compliance and level of compliance by providing numbers, data and any specific cases relevant to each of the principles.

However, report also says that the BRR format is not comprehensive enough to assess certain parameters such as policy related mechanism and process, sensitization of employees and other stakeholders, engagement with stakeholders, periodic monitoring and evaluation. It is clear that the BRR format, though a positive step towards ensuring corporate transparency and accountability has limitations and needs further strengthening. Nevertheless, given the fact that these are top 100 companies and that the Securities and Exchange Board of India (SEBI) has mandated the submission of the report, the response to BRRs has been notewor­thy and the availability of the BRR is the public domain is a good beginning.