In conversations around ESG, the emphasis has often been on the environmental aspect, with the social part receiving less attention. Sonvi Khanna and Rohan Nadimpally of Social Compact, the social governance arm of Mumbai-based non-profit Dasra, discuss the need for a fresh perspective on corporate social governance in India, and why companies need to focus on the “S” in ESG.
ALB: How much importance have companies given to their social responsibilities so far?
Khanna and Nadimpally: The last decade has seen corporate leadership place increased emphasis on environmental aspects of ESG. However, progress on social sustainability or the ’S’ of ‘ESG’ remains largely superficial and fuzzy. While some businesses equal social sustainability to CSR, others consider greater diversity and inclusion in their white-collar workforce as fulfilling the mandates of social sustainability. India’s vast blue-collar workforce, in particular the 200 million industry-engaged informal workers, has yet to enter the definition of social sustainability in business.
Despite being critical to the sustenance of business chains, industry has managed to keep these layers invisible and at “arm’s length,” falsely assuming that poor practices surrounding these workers pose no imminent business risk to the apex business at the top of the chain.
ALB: How is social governance relevant from a regulatory perspective?
Khanna and Nadimpally: In India, labour is primarily regulated through labour laws, while corporate governance is addressed through corporate and securities laws. To be able to implement effective governance structures, there needs to be a convergence of these laws. We are seeing such convergence gain increased traction by regulators.
Indian regulators have been taking proactive steps to increase scope and coverage of governance requirements over the last few years. In 2021, SEBI introduced Business Responsibility and Sustainability Reporting (BRSR), man-dating listed companies to report on ESG metrics, including disaggregated data for their employees, contractual workers and supply chain. In 2023, SEBI introduced BRSR Core, providing for KPIs on BRSR assessments which includes metrics on POSH, and female wages.
ALB: Businesses often treat social governance compliance as a tick-in-the-box exercise. What are the incentives for companies to go beyond?
Khanna and Nadimpally: The ‘problem-management’ approach to sustainability, as opposed to the ‘problem-solving’ approach, is the genesis of the ‘tick-in-the-box’ syndrome. Effective social governance assumes that the mission is upheld across systems and levels in a business. This requires commitment, effort, investment of resources and enablement support. We realised very early that identifying sustainability gaps and emphasising on action was insufficient. “How” to enable and sustain the change was where the buck stopped, a lot more than on the “why.” Hence, it was important not only to help companies assess the maturity of their informal worker practices but also enable a systems and design thinking approach to correct deficiencies in governance structures, diversify organograms, build internal functions, and decentralise accountability across levels to ensure the improvement is absorbed and upheld across layers in the organisation.
There are four reasons why companies must do this. First, to qualify for business in Germany, and soon, Europe, where demand for greater business responsibility towards human rights, especially in supply chains, is on the rise. Second, for a listed business in India, or its supply chain, transparent and inclusive systems are needed to comply with SEBI’s fast-evolving ESG-related guidelines. Third, the 200-million industry-engaged informal workforce is relatively untapped today as a demographic. The perceived dichotomy between thriving individuals and business success is false and is, in fact, a synergy that India is uniquely positioned to be a global leader in. Fourth, don’t be late to the party! This shift is no longer voluntary but here to stay as a prerequisite for conducting business in markets of repute.
ALB: How can companies take steps to do more on the social part?
Khanna and Nadimpally: Boardroom conversations need to evolve to include diverse stakeholders. If you are on the board of a company, make sure you assess the following in your next meeting:
(i) Systems that allow senior management to assess informal worker practices across company, contractors and supply chain.
(ii) Comprehensiveness of aspects covered by these systems.
(iii) Cadence and format for reporting – quarterly, semi-annual or annual and coverage of risks, improvements, progress, and challenges.
(iv) Feedback loop to hear from workers on grievances, suggestions.
Companies need to move beyond comfortable conversations on CSR, char-ity and larger community development, and focus on inclusive and transparent systems within their business. There is an opportunity to move quicker on the “S” of ESG and not delay as we did with the “E.”