1. Introduction – An additional disclosure to Corporate Governance:
The Ministry of Corporate Affairs has set up an expert panel that proposed a new policy for businesses which will require them to provide how their product or services are sustainable and responsible to the society and if they pose any risk to the environment in addition to being compliant with the law. This expert panel is under the chairmanship of Mr. Gyaneshwar Kumar Singh, a joint secretary in the Ministry of Corporate Affairs (MCA) which has suggested two reporting formats that a comprehensive reporting regime and a ‘lite’ version.’ Read-MCA releases Report of Committee on Business Responsibility Reporting
The compliances related to reporting requirements have been decided to be followed in a gradual way. Ultimately, such reporting requirements by companies could be used to develop a business responsibility and build a sustainability index for companies.
The essence of making such norms compulsory for a business to place a certain amount of pressure on the businesses to develop a sense of responsibility for the society apart from fulfilling statutory compliances and meeting shareholders’ objectives. It will also provide an opportunity for the stakeholders in the company to evaluate how much ethical standards a company follows while making investment decisions.
Likewise, it also has an effect in the sense that the corporate sector can also participate in meeting the aim of the Government of India for the sustainable development goals in the country, poverty reduction, eliminating gender inequality, and adoption of clean energy.
For ensuring effective implementation of the program, the expert panel has recommended working closely with the capital market regulator SEBI.
2. Background- Why was it required?
India is emerging as a potential market for investors with some of the biggest global level businesses coming into the being. Therefore, it is important for businesses to understand their obligation towards society when some of them are already working on a global level with others following them.
Similarly, in recent years the Government has time and again realized the importance to widen the scope of corporate social responsibility and the need for good corporate governance policies. As the policies related to environmental, social and governance investment are in trend nowadays, in the same manner, demands for non-financial reporting is rising and the proposed business responsibility structure will surely provide a platform for investment in sustainable development.
3. What compliances will be involved?
Such reporting regime will involve a list of guidelines to be followed by every responsible business which was introduced under the “Responsible Business Conduct“ in 2019, with an updated version of certain voluntary guidelines issued in 2009. The market regulator authority SEBI has already prescribed such business responsibility report to the top 1000 listed entities on the basis of their market capitalization by the perspective of social and environmental governance.
The “Responsible Business Conduct “intended businesses to involve more implicitly with stakeholders beyond their regulatory and financial compliance relationship. Now, the reporting framework intends to cover both listed and unlisted enterprises.
Key Highlights-
1. Businesses while engrossing themselves in any policy involving something having an effect on the public and regulatory policies should do the same in a transparent and responsible manner.
2. Businesses shall be required to disclose the details of-
- Public policy positions they support;
- Approaches resorted to such support and;
- Whether the information shall be available in the public domain.
3. Businesses shall also be required to report the details of adversarial judiciary or supervisory orders for anti-competitive conduct in the financial year under review. The proposed report in effect shall be a voluntary self-assessment of corporate conduct and character of the entity.
4. The other significant reportage necessities relate to submitting are whether such entities have taken adequate actions to encourage gender equality among male, female and other genders. Also, these companies shall be required to report the average pay among these categories across various roles.
5. Businesses shall be required to inform whether their products or services involving environmental risks and what steps are being taken to solve them. The amount of money expended on research for the purpose of improving the environmental and social impact by the businesses to the total research and capital expenditure by the firm will form another part of the report.
6. Businesses will be required to disclose their ways to influence regulatory policies and shaping public opinion in depth along with the public policies they support as a part of the new business responsibility reporting regime.
4. Conclusion- Effect of Compliances:
Therefore, where Indian companies are aspiring to have a global outreach, they can’t simply disregard the evolving trend of corporate governance, which is pertinent for every responsible business in India. The policy intends to cover both listed and unlisted entities above a certain threshold limit to be dependent either on sales amount or paid-up capital to be later decided by the Government of India. Additionally, smaller companies may apply a ‘lite’ version of the reporting policy for smaller businesses to adopt the scheme voluntarily.
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