Corporate governance and sustainability reporting disclosure of environmental information by Indian companies

Abstract

In a free enterprise, the community is not just another stakeholder in business, but is infact the very purpose of its existence. Jamsetji Tata1Corporate Governance (CG) is a set of rules, regulations and practices for governing aCompany to protect the interest of its stakeholder s. Responsibility of the Business isincreasingly shifted from making profit for the Shareholders to legitimate environmental andsocial concerns for the larger community. Business managed from the point of view ofshareholders focuses on the narrow goal of earning profit. However, good corporategovernance considers the interest of all the stakeholders which is essential for the long termsuccess of the business. Studies suggested that Companies which discloses environmental andsocial information with financial information, known as triple bottom line for good governance,outperforms low sustainable Companies. CG legislation for disclosure of information in Indiamainly focused on the interest of the Shareholders. Interest of the other stakeholders mainlycommunity at large is ignored. All over the world disclosure of environmental and socialinformation gains importance. Global Reporting Initiative (GRI) prescribed guidelines for thedisclosure of the sustainability information. Companies all over the world increasingly usingthe GRI guidelines for disclosure of environmental information. Around 25% of the top 100listed companies in India report sustainability information as per GRI guidelines.Degradation of environment in India in the way of air pollution, water pollution, anddeforestation has become concern for climate change. It is a known fact that industrialisationis the biggest contributor for environmental pollution and consumption of natural resources.India is a developing country and the industrialisation is essential for keeping up the growthrate. However, industrial growth should not come at the cost of the health of the people.Therefore, there is a need to keep balance between growth and protection of environment.There is lack of study in India on Corporate Sustainability reporting practices. Few studiesmade in this area suggests low level of environmental disclosure among Indian Companies.CG regulations on disclosure of information on consumption of natural resources andenvironment in India is very restrictive in nature. In 2011, Ministry of Corporate Affairs issuedNational Voluntary Guidelines (NVGs) for disclosure of Environmental information.Consequently, in 2012 SEBI introduced a new clause 55 to incorporate the principles of NVGs.It was made mandatory for the top 100 listed companies to disclose information onconsumption of natural resources and environment in Business Responsibility reporting and itwas left voluntary for other companies.A study of the Annual Report for the year 2014-15 of 20 listed companies reveals that level ofcompliance of NVGs regarding environmental information is very poor. It was also noticedthat Indian Companies comply with the provisions of disclosures when it is mandatory whereasthey do not disclose information when it is voluntary. Further, wide variance in reporting ofinformation from Company to Company is noticed. Therefore, there is a need for mandatorydisclosure of environmental information in structured way.It is recommended that Disclosure of Environmental information should be made mandatoryin line with Companies Act, 2013. Companies required to mandatorily disclose the CorporateSocial Responsibility Policy under section 135 of the Companies Act should also discloseenvironmental information either in the Annual Report or in the Website as per the formatgiven in this report. Other Companies may voluntarily adopt this format for disclosure of theenvironmental information.