Critical analysis of sustainability data reporting of selected Indian companies

Chia sẻ: Huỳnh Ngọc Toàn | Ngày: | Loại File: PDF | Số trang:10

Thêm vào BST

Báo xấu

18
lượt xem 4
download

Download Vui lòng tải xuống để xem tài liệu đầy đủ

This research paper studies Sustainability Reports of top 100 (BSE Top 100) companies. A critical analysis is done on the data reporting practices and the gaps therein.

Chủ đề:

Bình luận(0) Đăng nhập để gửi bình luận!

Lưu

Nội dung Text: Critical analysis of sustainability data reporting of selected Indian companies

International Journal of Management (IJM) Volume 9, Issue 3, May–June 2018, pp. 119–128, Article ID: IJM_09_03_013 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=3 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication CRITICAL ANALYSIS OF SUSTAINABILITY DATA REPORTING OF SELECTED INDIAN COMPANIES Parag Kalkar Director, Sinhgad Institute of Management, Savitribai Phule Pune University, Pune Anand Chitanand Research Scholar, Sinhgad Institute of Management, Savitribai Phule Pune University, Pune ABSTRACT Importance of Sustainability reporting has been underlined by governments, several non-profit and for-profit organizations. There is several research papers already published on Sustainability Reporting trends. Limited research available on the quality of the reports. Overall the trend is encouraging however; a lot has to be done in terms of the quality of the information disclosed in these reports. This research paper studies Sustainability Reports of top 100 (BSE Top 100) companies. A critical analysis is done on the data reporting practices and the gaps therein. Since one of the major reasons for the disclosure being the investor education, the information disclosed should be comprehended easily for making the decisions. Several gaps are seen in the way the data is presented in the Sustainability Reports by the companies. It gives a feeling that companies are more interested in the compliance rather than being proactive leaders of Sustainable development. Equal responsibility lies on the agencies that help in preparing the Sustainability Reports for the companies. Keyword: Sustainability, Sustainability Reports, Sustainability Reporting, Sustainability data Cite this Article: Parag Kalkar and Anand Chitanand, Critical Analysis of Sustainability Data Reporting of Selected Indian Companies, International Journal of Management, 9 (3), 2018, pp. 119–128. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=3 1. INTRODUCTION Environmental laws are becoming more and more complex. At the same time there is a focus on the disclosure by the organizations the key business parameters that reflect the impact to the society, environment in addition to the economy. Business organization irrespective of size or type of its business activity causes some impact on the global sustainability. http://www.iaeme.com/IJM/index.asp 119 editor@iaeme.com
Critical Analysis of Sustainability Data Reporting of Selected Indian Companies World is also caught up between two words - Sustainability and Development. There is one group who is concerned about the needs of future generations whereas, there is another group arguing for the poor of today’s generation who is deprived of very basic living such as health care, education, social justice etc. (Pierce David and Atkinson Giles, 1998). There is also confusion in the understanding of quality of life and standard of living. Humans want quality of life and industrialists want standard of living. The human aspirations confuse between standard of life and quality of life and that makes people hungry of new and new things all the time. The industrialists market their products in such a way that people want more and more all the time. Most of the economic growth today is through such growth rather than improvement in quality of life. The rate at which we consume the finite natural resources, it is near impossible to preserve the resources for the future generations (United Nations, 2010). Marginal efforts by a limited world will not fetch much result. Financial reporting is a legal requirement for organizations. However, as referred in the article ‘Outside Insights Beyond Accounting’ authored by Graham Hubbard of University of Adelaide for The Institute of Chartered Accountants in England and Wales (November, 2009), non-financial measurements of social and environmental performance also affect the business strategy, practices and outcomes of an organization and hence it has become equally important. Therefore, including social and environmental performance in the organization’s reporting is being now referred to as Corporate Responsibility Reporting or Sustainability Reporting. To bring in some accountability to the corporate world various guidelines / standards have been released for the organizations to report their performance on Sustainability. The most common and widely adopted is the GRI guidelines released by Global Reporting Initiative (Chopra K. et al, 2014). Other similar initiatives being Carbon Disclosure Project (CDP), UN Global Compact’s Communication of Progress (CoP), National Voluntary Guidelines on Social, Environmental and Economical Responsibility of Business released by Ministry of Corporate Affairs, Govt. of India, etc. Here of course, the major lead needs to be taken by the developed countries and less by under developed nations. Most of the environmental talks at the global level have failed on fixing the responsibility. Because the developed nations do not want to compromise on their economic growth targets. The under developed countries do not have any capabilities and they fall victims to the developed world. There is a growing awareness on the environmental issues along with the political will and commitment to address these issues (UNEP Report, 2013). The business organizations appear to be in the dilemma of environmental preservation and social equality versus economic growth. It’s a tough challenge (Elliott Jennifer A., 2006) for the organizations to embrace all the three pillars ‘Profit, People and Planet’ within their business strategy and treat all of them fairly equal. Global Reporting Initiative (GRI) is a leading organization in the sustainability field founded in 1997 in Boston, initially by name Coalition for Environmentally Responsible Economies (CERES). GRI promotes the use of sustainability reporting as a way for organizations to become more sustainable and contribute to the sustainable development. GRI defines a reporting framework to be disclosed by the organizations. Globally GRI reporting is being followed by organizations to report Sustainability. Currently all the guidelines are voluntary in nature. However, as the consumers and other stake holders are becoming conscious about the Sustainability challenges, there is an increased trend in reporting. Sustainability Report presents the organization’s values and governance. GRI’s effort is to make sustainability reporting a standard practice for every organization. http://www.iaeme.com/IJM/index.asp 120 editor@iaeme.com
Parag Kalkar and Anand Chitanand Richa Gautam and Anju Singh (2010), studied the CSR practices of top 500 Indian companies to view and conduct their CSR. The paper deep-dives in to the history of Corporate Social Responsibility and tracks how the awareness of CSR developed over a period of time. It also studies the compliance of CSR practices globally and in India. Major findings of the research paper were based on Karmayog’s research of top 500 Indian companies. In a study titled ‘Sustainability Reporting Trends in India’ carried out by Arvind Sharma, Director Climate Change and Sustainability Services KPMG, it is observed that globally economic consideration, innovation, employee motivation and cost saving prompt the companies to adopt sustainability. In India, it has been observed that strengthening reputation, brand promotion and ethical considerations are the key drivers of sustainability. As per Mr. Sharma this contrast highlights that Indian companies still have not integrated sustainability in to the mainstream. As per this study, almost all companies who report as per the GRI guidelines claim to be A or A+ application level. It appears that the reporters believe that the higher application level is equivalent to better sustainability performance. It is also observed in this report that very few companies have a clear linkage of sustainability to their business strategy. 2. STUDY OF SUSTAINABILITY REPORTS OF BSE TOP 100 COMPANIES Most of the research so far has been in terms of the compliance of Indian companies with the sustainability reporting. While it is important that more and more companies voluntarily adopt the Sustainability reporting guidelines, it is equally important that the data reported is useful in drawing meaningful information for the reader of the report. Sample for this study was selected in the form of BSE top 100 companies from the internet as on 14th Nov. 2014. The Sustainability Reports of the companies were accessed from Global Reporting Initiative’s Sustainability Disclosure Database (SDD). Interestingly, when these reports are actually checked on the GRI database, out of the total 100 companies (BSE Top 100), 47 companies have submitted at least one recent Sustainability Report as per GRI guidelines. 42 companies have published their Annual Report on the GRI database which includes Business Responsibility Report as per the National Voluntary Guidelines 2011-12 required as per Ministry of Corporate Affairs, Govt. of India. Figure 1 Sector wise distribution of Companies Submitting Sustainability Reports http://www.iaeme.com/IJM/index.asp 121 editor@iaeme.com
Critical Analysis of Sustainability Data Reporting of Selected Indian Companies Figure 2 Sustainability Reporting Trend in India (November 2017) Figure 3 Sustainability Reporting Companies on GRI Database. (February 2018) 3. GAPS IN SUSTAINABILITY DATA REPORTING Businesses are becoming increasingly responsible and more and more number of companies – private or public is disclosing their performance on the sustainability guidelines. The change is definitely welcome. GRI guidelines are mostly followed by organizations, while some of them follow the National Voluntary Guidelines released by Ministry of Corporate Affairs. An attempt is made to critically analyze the data disclosed by the companies in their report. Some of the companies are named in this paper and they are representative examples of the observations. There is no direct or indirect intention of the authors to demean their efforts in the journey towards a sustainable future. A detailed study of the GRI based Sustainability Reports reveals following observations 1. Most of the reports portray a very positive and green picture in general. 2. A lot of effort is made by these reports to build a good image of the company through various photographs, catchy phrases, product and services information, various CSR activities etc. 3. The GRI guidelines recommend the organizations to report the data pertaining to the reporting year and preceding two years. Since this is a recommendation and not a mandatory requirement, some of the company have reported the data of only two years or at times only for one year. For example, take the case of ITC’s Sustainability Report for 2015. Green House Gas emission for only two consecutive years’ (2013-14 and 2014-15) data is shown. Energy intensity data is given for 2013-14 and 2014-15. While it serves the purpose of transparency, it fails to give stake holders enough information as to if the organization is acting on the material impact areas or not. Neither the baseline can be confirmed nor the improvement trend can be judged. Similarly, Adani Ports and SEZ have presented the data of only one year for most of the parameters in the Sustainability Report for 2016-17. Axis Bank in their Sustainability Report 2016 has presented environmental data for only two years. http://www.iaeme.com/IJM/index.asp 122 editor@iaeme.com
Parag Kalkar and Anand Chitanand Figure 4 GHG Emissions data of ITC as per Sustainability Report for 2015 The figure shows two years’ data with marginal change in numbers. It is not prudent to conclude. How can anyone conclude whether there is any improvement or not? While the data shown is correct, but is it conclusive? Donald J. Wheeler in his book ‘Understanding Variation - The Key To Managing Chaos’ (1993) says that no comparison of two values can be global. A simple comparison of the current figure and previous figure cannot fully capture and convey the behavior of the process or a time series. A very important rule for data presentation by Dr. Walter Shewhart mentioned by Donald J. Wheeler (1993) in above book - Extract1 ‘Data should always be presented in such a way that preserves the evidence in the data for all the predictions that might be made from these data.’ Some companies such as GAIL (India) Limited provide five years’ data, which is relatively much better to represent. If we fetch the data from the recent Sustainability Reports of ITC and add the data for two more years, the representation becomes more meaningful. Refer the graph below Figure 5 ITC Limited GHG emissions as per Sustainability Reports 2015 and 2017 4. One of the very fundamental to process improvement is the measurement. It is very important how one measures a particular parameter. Improvement or deterioration in the parameter can be judged based on firming up the baseline performance and a minimum number of observations or data points. The number of data points increases the confidence level of the judgement. ONGCL’s 2013-14 Sustainability report provides three years data for energy consumption and energy savings. Of course, this is still inconclusive to establish a trend. For fresh water consumption, a five consecutive years’ data is presented. http://www.iaeme.com/IJM/index.asp 123 editor@iaeme.com
Critical Analysis of Sustainability Data Reporting of Selected Indian Companies Figure 6 As per ONGCL Sustainability Report 2013-14 p. 93 Further it is important to understand that a random variation exists in every time series according to Gerald Keller (2007) in his book ‘Statistics for Management and Economics’. For making the accurate predictions, it is necessary to reduce the impact of random variation. Some of the simple methods suggested by Keller are use of Moving Average or Exponential Smoothing methods. These methods very basically will require sufficiently large data points. Therefore, if the data provides 3 or 4 data points one cannot predict whether the variation is due to some efforts (i.e. control or improvement in input variables in Six Sigma language) or is just the effect of random variation. If the organization does not have more data points, apart from yearly data, the organization can also show monthly data and see if there is any clear improvement trend. If the organization is not making any efforts to bring in the improvement, then whatever variation seen in the data would be as a result of random variation in the process. Six Sigma (statistical) tools would help in identifying the variation caused by a special cause and variation caused by a random variation. 5. The figures such as energy consumption, CO2 emissions, Water consumption, etc. are usually large numbers. A scan through various reports show that these figures are most of the time calculated based on some assumptions, formulae and not measured. Take the example of ACC Limited’s Sustainability report of 2017. A note under the water consumption report for 2014, 2015 and 2016 says that ‘partial quantities are from the meter readings where available while the rest are derived from pump capacities and running hours.’ The Sustainability Standards 2016 allows the organization to report estimates or calculated figures. GRI 4 guidelines or GRI Standards 2016 required companies to disclose the standard, methodology and assumptions used for the measurements (e.g. GRI Disclosure 303-1 Reporting recommendations). Idea, probably is to encourage companies to disclose. Many sustainability reports do not provide the information on the standard or methodology used for measuring or estimating the numbers. (E.g. Sustainability report of Ashok Leyland 2016-17) 6. GRI guidelines require the organizations to report some of the absolute performance measures and also the same performance as a ratio with total production, sales, or turnover. E.g. Gross Direct GHG emissions and GHG Intensity Ratio. Another example could be Total Volume of Water Recycled and Reused and Percentage of Water Recycled and Reused. The ratios or percentages are useful numbers which can be used for comparison between the two reporting periods or between two different companies. Most of the measures mentioned in ITC’s Sustainability Report for 2015 include data for last six years which is fairly an indicative of a trend. However, the data needs to be seen on the background of some context. Both in the cases of ONGCL and ITC the assumption is made that the economic activity of the company is either constant or increasing. Or, it should at least be compared in the form of ‘Rate’ – which is the requirement as per latest GRI http://www.iaeme.com/IJM/index.asp 124 editor@iaeme.com
Parag Kalkar and Anand Chitanand Standards 2016. So, if one has to conclude, the data needs to be seen in context. In case of ONGCL, one needs to see the expenditure on Sustainability initiative as against the total revenue (as a measure of economic activity). One of the leading banks claims in their Sustainability Report for 2016-17 that the energy consumption per employee reduced from 26.05 GJ to 25.81 GJ in the year 2014-15. The bank claims that the reduction is achieved through energy conservation initiatives. A simple statistic will tell that the reduction achieved is less than 1%. In the same report the bank informs that the energy consumption per employee increased in the year 2015-16 by 16% due to increase in the distribution network. This information indicates that for energy intensity number of employees is not the only factor, but the distribution network is also an impacting factor. Hence, the information provided becomes inadequate. Another example of incomplete information comes out in the sustainability report of one of the top oil companies’ data on carbon emission for three years. The data shows increase in the carbon emission. However, company claims the increase due to increased production activity. The very purpose of reporting carbon emission per ton is to make the metric independent of production activity. Figure 7 Figure from Sustainability Report 2012-13 of ONGCL. The report claims the decrease in the carbon emission from year 2010-11 to year 2011-12. But the same report is silent on the increase in the carbon emission as compared to the base year of 2009-10. In this case there are two gaps emerging – one, which year should be considered as base year and why. And second, the graph throws half-truth as it explains the improvement but does not speak about the deterioration in performance. 7. The base line performance is another important point to be paid attention to. Very few reports have explained why a particular year is considered as a base year. GRI Standards 2016 requires companies to identify the base year and explain in the report, why a particular year is considered as base year (e.g. GRI Disclosure 302- 4). 8. Tweaking the graphical representation is rarely seen in some odd reports. This is probably to show that there is a significant improvement. The Sustainability Report of one of Steel Authority of India Limited for the year 2012-13 shows Specific Water consumption, for example is shown as – http://www.iaeme.com/IJM/index.asp 125 editor@iaeme.com
Critical Analysis of Sustainability Data Reporting of Selected Indian Companies Figure 8 from Sustainability Report of Steel Authority of India Ltd. for 2012-13 CO2 intensity for three years is shown as Figure 9 Sustainability Report of Steel Authority of India Ltd. for year 2012-13 Above figures (Figure 8 and 9) represent a poor attempt to show the improvement trends by choosing the Y axis scale. Nevertheless, there is an improvement seen over a period of three years. One fact that needs to be appreciated, that the report has not used the parameters in absolute terms but has shown the values per tcs, which is the measure of their production. The same graph (Figure 8) if plotted on a different Y-axis scale starting from zero and with five years’ data, it becomes much more meaningful – Figure 10 CO2 Intensity as per data presented in Steel Authority of India Ltd. Sustainability Report for the year 2012-13 and Report for 2016. 4. CONCLUSIONS BASED ON THE GAPS IN SUSTAINABILITY DATA REPORTING Sustainability reporting is intended to bring in accountability to the organizations for the operations and impacts on the environment and society and their contribution towards the goal of Sustainable Development (GRI 101: Foundation 2016). The data presented through this reporting facilitates the internal and external stakeholders to form an informed opinion and decisions about the organization’s contribution towards the Sustainable Development Goal. It is obvious that if the quality of reporting is inadequate, the informed opinions and decisions are going to be wrong. http://www.iaeme.com/IJM/index.asp 126 editor@iaeme.com
Parag Kalkar and Anand Chitanand There is a greater responsibility on the agencies who help prepare the sustainability reports for the organizations that their credibility should not be lost or questioned when they prepare and certify or rate the sustainability reports. 5. RECOMMENDATIONS FOR THE ORGANIZATIONS AND CERTIFYING AGENCIES One of the very fundamental with the Sustainability reporting is that the organizations need to be transparent in disclosing the information relating to the economic, social and environmental impacts. The underlying assumption is that the information must be easily understood by the stakeholders and are able to take informed decisions. The critical observations above throw light to several gaps in the reporting which are necessary to be sealed by the organizations and the assessing agencies as well. The key recommendations from this research would be as follows – 1. The data presented be at least for 5 years. GRI guidelines stipulate the data requirement of 3 years at least. However, 5-year data would present more meaningful value. Many companies have published the Sustainability Reports for more than 5 years. Therefore, these companies have the requisite data for more number of years. There is no ham in disclosing data for more number of years, if it is available. 2. Data be presented in absolute terms as well as in the rate or ratio form. The rate should convert the data independent of production or sales activity. The production or the sale should have a strong correlation with the data. If they are not correlated or there is some other metric which impacts the data, the report should disclose the same with proper explanation for use of certain metric. 3. For each data disclosure, organization need to state the future targets for improvement for at least next two years. A brief action plan for achieving the targets in next two year would give added confidence to the reader of Sustainability Reports. 4. The data should present a trend of improvement. Just reduction or increase between two values can be only a random variation generally present in any two values of a data. It is the assessor organization’s duty to separate variation due to any special cause i.e. a variation which can be caused due to some effort or external action. 5. Complete transparency is important. If certain data is showing unfavorable results, it is fine if the organization states the explanation rather than showing a blind eye. 6. Finally, for the certifying or assessing agencies, even though, the information and data is provided by the company, it is the agency’s responsibility to make sure that the report and data is easily consumed and analyzed by the stakeholders. The inferences drawn on the basis of any data must represent the facts. REFERENCES Journal Articles [1] Pearce D. and Atkinson G.; The Concept of Sustainable Development: An Evaluation of Its Usefulness Ten Years After Brundtland, CSERGE, 1998, PA 98-02 [2] Hubbard G.; Outside Insights Beyond Accounting’ University of Adelaide for The Institute of Chartered Accountants in England and Wales; November, 2009 http://www.iaeme.com/IJM/index.asp 127 editor@iaeme.com
Critical Analysis of Sustainability Data Reporting of Selected Indian Companies [3] Chopra K. et al; A Study on Sustainability Disclosures and Reporting Trends in India: An Analytical Validation’ Global Journal of Finance and Management; Vol. 6, No. 9, pp 821-826. [4] Gautam R. and Singh A.; Corporate Social Responsibility Practices in India: A Study of Top 500 Companies (2010) GBMR Vol. 2 No. 1, pp. 41 – 56. Books [5] Elliott Jennifer A., An Introduction to Sustainable Development – 3rd Edition 2006 [6] Keller G. book ‘Statistics for Management and Economics’; 2007. [7] Wheeler Donald J. Book ‘Understanding Variation – Key to Managing Chaos’ 1993. Internet [8] EY Report ‘Seven Questions CEOs and Boards Should Ask about “Triple Bottom line” Reporting http://www.ey.com/Publication/vwLUAssets/Seven_things_CEOs_boards_should_ask_a bout_climate_reporting/$FILE/Seven_things_CEOs_boards_should_ask_about_climate_r eporting.pdf [9] Global Reporting Initiative GRI (G3) guidelines released in 2006 and downloaded from GRI Website https://www.globalreporting.org/Pages/default.aspx [10] Global Reporting Initiative GRI (G4) guidelines released in 2013 and downloaded from GRI website https://www.globalreporting.org/Pages/default.aspx [11] GRI Standards 2016 - https://www.globalreporting.org/standards [12] Trends in Sustainable Consumption and Production’, a report published by United Nations (2010) [13] Sustainability Reports published on GRI database - http://database.globalreporting.org/search/ http://www.iaeme.com/IJM/index.asp 128 editor@iaeme.com