Green Corporate Governance involves the various initiatives undertaken by a Company to tackle climate change, guarantee decent work, and protect biodiversity on land and in the oceans. It ensures the protection of the environment through the Company’s activities while earning profits.
Need for Green Corporate Governance
Rapid economic progress has deteriorated the environment, which has impacted the quality of life significantly. According to the World Air Quality Report 2019, 21 out of 30 most polluted cities worldwide are from India. Also, the average annual exposure to harmful particulate matter (PM 2.5) exceeded the WHO’s standards by 500%, thus making it dangerous for human health. Over 50% of the pollution comes from the industries, followed by 27% from vehicles, due to which over 2 million Indians lose their lives every year.
GLOBAL MAP OF ESTIMATED PM2.5 EXPOSURE BY COUNTRY/REGION IN 2019
Role of Corporate Social Responsibility
- Corporate Social Responsibility (CSR) is an approach through which a company tries to maintain a balance between economic, environmental and social imperatives while meeting the expectations of its shareholders and stakeholders. The programs have been launched in order to improve the overall societal development of many firms around the world that focus on societal goals of philanthropic, activist, or chartable as they adopt a triple bottom line approach, i.e., People, Planet, and Profit.
- Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India has made the CSR as a mandatory provision by imposing a statutory obligation on companies to take up CSR projects towards social welfare activities. This CSR initiative will push the nation towards the achievement of sustainable development goals and lead to a public-private partnership that would help in transforming India.
- The Act makes it mandatory for the Companies with a net worth of more than ₹500 crore, turnover of over ₹1000 crore, or net profit of over ₹5 crore, to spend at least 2% of the average net profit of the last three fiscal years on CSR.
- CSR expenditure has shot up in recent years as the number of companies spending more than the prescribed CSR amount increased by a CAGR of 36.3%, whereas the total number of companies altogether has grown at a pace of 10.8%.
- The cumulative CSR expenditure by N100 companies over the last five years (2014-19) has been ₹35,077 crores.
- Out of the total CSR amount spent in FY19, a mere 9% of the fund was utilized for the environment, animal welfare and conservation of resources. According to Indian Institute of Corporate Affairs, firms are required to have a CSR policy and committee in place along with a proper implementation strategy in order to use the fund judicially.
- The total amount spent by the N100 companies for the CSR initiatives has overtaken the prescribed amount, according to a recent survey of KPMG. It shows that firms are now becoming more responsible for their stakeholders. This further emphasizes the fact that the initiatives taken are not due to the fear of regulations but their own willingness to contribute towards the society.
Are CSR Funds Enough?
Provision made by the Government under Section 135 of Company Act 2013 mandates that the companies should spend a minimum of 2% of the average profits made in the preceding 3 financial years on CSR. Considering the population of India, the impact created by CSR is not enough. Hence, the Companies need to go beyond just achieving the CSR targets and focus on going green, as the initiative can result in cost reduction for the companies in the long run.
Some Companies have started green initiatives by aligning their local needs and opportunities and not just under some regulation pressure.
Godrej and Boyce have come up with good and Green program, including greening company operations and developing greener or socially-beneficial products.
Ratan Tata started the climate change revolution during the Tata Business Excellence Convention in 2007 by asking the Tata Group Companies to play a more responsible role regarding climate change. Soon, the Tata Climate Change Policy was released in 2009, which focused on incorporating green perspective in key organization processes across Tata Companies. Tata Sustainability Group was formed in 2014 in order to partner with Tata Group of Companies to embed sustainability in their business strategies. With its continued efforts for the cause over a period, Tata Group has been ranked among the top 15 Sustainability Leaders globally.
According to the Carbon Disclosure Project, the number of Companies in India that have incorporated board-level oversight of climate-related issues has increased from 47 in 2018 to 58 in 2019.
Hence, by integrating climate-related matters with the business, the Company can create new opportunities and mitigate the threat to the environment.
Green Initiatives by Corporates
- IKEA helped Indians in cutting down the carbon footprint by 37,800 kg of CO2 by means of its Better Living App. It also aided in conserving 1.4 million litres of water and waste segregation of 9.6 thousand kgs.
- ITC’s 41.2% of the total energy demand was met from renewable sources like biomass, wind, and solar in FY20. ITC has set a target of meeting 50% of its energy demand from renewable sources by 2030.
- Hindustan Coca-Cola Beverages has successfully commissioned 7 additional renewable energy projects, bringing down the carbon emissions by 2 lakh tonnes every year.
- Myntra has equipped 2 of its fulfilment centres with solar roof panels spanning over 58000 sq. ft, which will help it to meet the 35% of the operational demand.
- Under the ‘Go Green’ initiative, Tata Motors will plant a sapling for every commercial vehicle sold.
- 182 energy conservation projects have been implemented by Dr. Reddy’s Laboratories across various business units in FY20.
Contributed By: Team Leveraged Growth
Co-Contributor: Pratik Sharma