On May 10, 2021 SEBI issued a circular titled “Business responsibility and sustainability reporting (BRSR) by listed entities”. This is a landmark moment in corporate governance in India and will have far-reaching implications on how businesses conduct themselves, right from investment to consumer protection.
The circular says, “Adapting to and mitigating climate change impact, inclusive growth and transitioning to a sustainable economy have emerged as major issues globally. There is an increased focus of investors and other stakeholders seeking businesses to be responsible and sustainable towards the environment and society. Thus, reporting of a company’s performance on sustainability-related factors has become as vital as reporting on financial and operational performance.”
Seeking disclosures in line with the nine principles of the “National Guidelines on Responsible Business Conduct”, SEBI has made it mandatory for the top 1000 listed companies to report as per BRSR from FY 22-23.
ESG to the forefront!
This development is crucial in bringing the Environmental, Social and Governance (ESG) to the forefront of corporate evaluation. ESG stands for “Environmental, Societal and Corporate Governance”. It is the measurement of an organisation’s positive orientation towards the tangible and intangible ecosystem around it and within itself, including aspects like environmental activism, employee relations, consumer protection, and fair trade.Just like IS certifications at one time, ESG scores and certifications are the key evaluation benchmark now.
This movement gained traction in the US in the late 1980s, debunking the Milton Friedman Doctrine that businesses should be measured only on aspects that impacted the bottom line, deeming aspects like CSR as non-essential!
Interestingly, the first historical instance of ESG being applied anywhere in the world was by the automobile industry itself. In 1971, General Motors complied with the freshly drafted Sullivan Code of Conduct by deciding not to do business with the Apartheid regime of South Africa. That set off a domino effect of many other businesses imposing ‘commercial sanctions’ on the regime.
South America has a robust ESG system with the Latin American Quality Institute leading the movement across 19 countries with more than 10,000 certifications.
Will the Indian auto industry lead BRSR compliance?
What immediate steps will the industry have to take, as a collective and as individual entity? Has the industry already done enough? Will such guidelines become a limiting factor when the industry needs to see unfettered recovery and growth?
These are some questions that cropped up and I decided to delve into the subject.
The best way was to reach out to certain domain experts and thinkers to get their perspectives on how exactly automobile companies need to prepare themselves for ESG and BRSR.
Kanika Tandon Bhal, Professor of Marketing at IIT Delhi, says, “People interfaces, be they employees, customers or suppliers, might change owing to the pandemic and the new modes of social interaction that have resulted from the pandemic. The entire value chain and the automotive ecosystem might get more integrated, leading to more efficiency and interdependence. This might require unique ways of dealing with the channel partners. HR systems designed around the assumption of a social woman (man) need to be creatively redesigned as the social interaction in the post pandemic world is going to be virtual, physically distant, and guarded (maybe).”
A very senior industry source who does not wish to be named brought forth a certain conundrum. “Our level of motorisation is very low because in India people can’t afford to buy vehicles. While we have a huge population, the automotive market is not being able to witness realisation of the potential as everything is dependent on affordability and the policies are making not only vehicles dearer but even the running costs are going way beyond affordability. Post pandemic, though the consumers will try to move away from shared mobility to individual and personal mobility, we will have to see how far the policy makers allow that. Already talks have started of increasing base version car costs significantly by fitting them with six airbags!”
So, is this not the right time to introduce standards like ESG and BRSR?
Sumit Arora, regional director of The Brand Experience Group (BXG), a firm that focuses on sustainability as a competitive business edge, explains, “Evaluation parameters are always evolving – current parameters are changing, and new ones would get added. The speed changes due to external factors. Events like the pandemic change the speed. The speed of digitisation increased significantly and even laggards have now adopted new practices. The Indian automakers should be prepared for different scenarios. In the past we have seen examples of lack of preparedness and resultant loss of market value. I think most OEMs are going slower and are not taking enough risks.”
BXG has a very interesting proposition on how to use “preference” as a metric borne out of experiences (of the citizen, consumer and employee) with the brand as a multiplier with societal and environmental metrics to deliver greater “prosperity”, something that John Elkington, the founder of SustainAbility in 1998 called the “triple bottom line.”
Industry veteran and executive coach Kanwaldeep (KD) Singh proposed the way forward for the industry in his typical erudite style. “In line with the advanced economies, ESG is getting a toehold in the topmost layers of the Indian corporate sector, including automobiles. This was less due to the environment, community, trade unions etc, and more driven by the international investor community.
For the automobile companies, this may mean scrutiny on a wide range of the existing and new parameters in the environment space – from, of course, vehicle emissions but also water use and reuse per car, renewable energy, resource reduction and recycling, impacts across the supply chain etc.
We can expect many new parameters to be created around how corporates are doing with respect to women in the new context. With the pandemic leading to large scale disruption in the small and medium sector, employment is likely to be a major economic and social issue for a few years at least.In a post pandemic world, they will now increasingly need to focus on the mental and emotional health of employees.”
A senior partner in one of the biggest global investment firms said that the new evaluation parameters for a firm like his would be “how thoughtful is path/strategy towards clean mobility, what part of recovery from Covid is sustainable, who in the management team is familiar with new technologies, how robust is the supply chain (such as microprocessors), how much experience does the company have with software (demonstrated by the slow progress of VW vs. Tesla), how appealing is the company to younger users, new business models (e.g. leasing, subscriptions).”
I finished off my round of interviews with Nitin Mantri, Group CEO of AvianWE, one of the country’s most respected PR and advocacy firms. Always the optimist, he says, “Sustainability will become the key to any future product sought to be unleashed in the markets. But at the same time, Indian automakers will continue to scout for new markets abroad and seek to increase their share in global markets while catering to domestic challenges.
Purpose is a parameter on which all companies, including automakers, will be evaluated in the Next Normal. Brands can no longer survive by being faceless entities that provide solutions through products and services and stay immune to the issues that are close to their customers.Purpose must be at the core of everything the company does, and it should be lived by each of its members – from the interns to the C-suite. If that’s not the case, consumers will know, and they will shame and disown the brand.”
Four key learnings
The four key learnings from what these six people shared are:
1. Parameters of evaluating an automaker / automarketer in India will be well beyond current tangible factors that impact only the bottom line.
2. The citizen, consumer, customer, and employee will be crucial stakeholders in the process of evaluation.
3. Each new factor will also be measured to make it equally tangible and comparable.
4. The change in evaluation will be more of a ‘revolution’ than an ‘evolution’…much faster than most management would feel comfortable with.
A few automobile brands like Maruti Suzuki, Tata Motors and Mahindra do incorporate ESG in their “integrated” annual reports. This is more led by pressure from the international investor community, SEBI and headquarters (Suzuki to be specific) than by a self-propelled initiative. Also, the quality and space dedicated to demonstrating how ESG is an integral part of corporate strategy leaves a lot to be desired. The automakers and auto marketers who are not listed do not have any compulsions of releasing any such report in the first place. And none does even out of volition. SIAM as an industry body did start the practice of releasing an annual compendium of CSR activities by all members a few years ago but I doubt it continues the same.
There is no way out!
BRSR will be mandatory from the next financial year. So the industry might as well adopt it in the right spirit from now and work towards nurturing an ecosystem that will allow a brand to be evaluated on a holistic platform than mere number of vehicles and spares sold and serviced.
The Indian automaker / automarketer has to realise that the citizen, customer, consumer and employee are far more evolved, empowered and engaged than ever before. Each talks and shares with the other on all aspects of the world of mobility and your brand that you could possibly track, trace and try to influence.
The evaluation factors
Globally the key pillars of evaluation are environmental (climate management, raw material management, waste management, ecological sustainability), social (diversity, human rights, consumer protection, animal rights), corporate governance (management structure, employee relations, executive compensation, employee compensation) and, responsible investment (under the guidelines of UN Environment Programme Finance Initiative and the Equator Principles of IFC).
While these are overarching factors to be considered, the Indian automobile industry needs specific parameters for each automaker / automarketer to be evaluated on, using both absolute and relative scales. The absolute scale will establish the minimum standard that every business has to achieve. The relative scale will allow comparisons for benchmarking and continuous improvement.
I predict that the following 12 parameters will form part of a holistic and integrated evaluation of the Indian automaker / automarketer, listed and unlisted. It will need an independent organisation to put it all together and start the process. Bodies like SEBI, SIAM, ACMA, FADA, CII and FICCI should be involved from the first day in setting the standards and procedure.
The 12 parameters
These 12 parameters are given in no order of priority.
1. Recyclability, scrappage and waste management
2. Employee health & safety – physical and mental
3. Contribution to Road Safety beyond vehicular safety features
4. Fair trade & procurement systems
5. Gender equality in workforce – employment and empowerment
6. Clean power sourcing
7. CSR initiatives for health, education, and environment
8. Responsible investments
9. Innovation systems for sustainability
10. Political neutrality
11. Cultural diversity and inclusiveness in workforce
12. Value Chain health support – upstream downstream – employment and skilling
Tomorrow’s Indian will not just consume your product or service but also what you do, what you say, how you say it, how you conduct business and how much you are paying yourselves. The recent instance of ‘shareholder activism’ at Eicher will grow into ‘stakeholder activism’.
Just like a good action will be lauded, an irresponsible one will be derided no end. All this will be in the interest of the brand as it will help it improve and evolve. India needs this level of transparency and accountability to build a more responsible and sustainable automobile industry.
(The author is co-creator of Expereal India. Also, he is former head of marketing, product planning and PR at Volkswagen India.)
DISCLAIMER: The views expressed are solely of the author and ETAuto.com does not necessarily subscribe to it. ETAuto.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
