Date : 27/05/2023

Relevance : GS-1: Salient features of Indian Society, Diversity of India, Effects of globalization on Indian society.

Key Phrases: ESG, Corporate Social Responsibility, Civil Society, Economic Power, Data and Privacy, Social Harmony, Social Harmony, Employment, Global Warming, Business Responsibility and Sustainability.

Context:

• Given the substantial control that corporations have over global assets, it is incumbent upon them to play a role in addressing income inequalities.

Introduction:

• When discussing ESG (Environment, Society, and Governance), companies often prioritize the 'E' for environment, showcasing their efforts in addressing environmental concerns.
• The 'S' for society is frequently overlooked, with companies assuming that corporate social responsibility and board gender diversity fulfill their societal obligations.
• However, it is crucial to address the societal dimension, considering the increasing inequality and discrimination prevailing worldwide, including in India. Neglecting societal concerns can lead to serious consequences.
• The importance of the 'S' in ESG and its impact on long-term corporate success cannot be overstated.
  • Social harmony plays a crucial role in ensuring the sustainability and prosperity of corporations in the ever-evolving business landscape.

The Growing Need to Address Societal Concerns

• As global wealth increases, income and wealth inequality become more pronounced, posing challenges to societies worldwide. India, for instance, has also witnessed a significant rise in inequality.
• Governments and civil society traditionally bore the responsibility of addressing these issues, while corporations focused on their core operations.
• However, the largest corporations today wield substantial economic power, impacting numerous individuals through direct and indirect employment and global supply chains.
• Their influence extends to policy-making and society at large. Neglecting ESG issues, be it related to global warming, income disparities, or social unrest arising from inequities, jeopardizes the long-term survival of corporations.
  • Hence, it is imperative for companies to view ESG not merely as investor demands but as critical to their own sustainability.

The 'S' in ESG and the Employee Dimension

• Within the ESG framework, the 'S' encompasses the impact of corporations on their immediate and broader social contexts.
• It encompasses a broad range of aspects such as employee diversity, discrimination reduction, employee safety and health, supply chain well-being, ethical sourcing, data and privacy protection, and product impact on society.
• Additionally, it addresses land use and its effects on ethnic communities, upholds animal rights, and fosters positive relations with local communities.
• The employee dimension is a key focus, as it recognizes that fostering social harmony requires equal opportunities and the reduction of discriminatory practices.

Actions for Indian Corporations

• SEBI (Securities and Exchange Board of India) has mandated the top 1000 companies to disclose ESG-related data using the Business Responsibility and Sustainability Reporting Framework.
• However, companies have the opportunity to go beyond mandatory disclosures and set benchmarks for others to follow voluntarily.
  • By voluntarily disclosing additional information, corporations can gain recognition and become a source of competitive advantage.
• Here are some employee-related disclosures that Indian corporates can consider making voluntarily:
  1. In addition to disclosing the ratio of compensation between the highest and lowest-paid employees, companies can provide commentary on their strategies to reduce this gap over time.
     • They can also disclose similar ratios for contract employees and individuals in their supply chain.
     • For owner-managed businesses, owners can calculate a ratio that includes dividends alongside salary to avoid distortions where dividends are preferred for tax reasons.
  2. Companies are required to disclose the number of permanent and non-permanent employees, categorized by gender and disability.
     • Corporates can expand their employee composition disclosure to include other dimensions such as state of origin, mother tongue, rural vs. urban background, religion, and social status (SC/ST).
     • They can work towards improving the composition in line with regional or national demographics.
  3. Changes in employee composition, including additions and exits, can be disclosed not only based on gender and disability but also considering the dimensions mentioned in (b).
  4. Gender differences in compensation are already required to be disclosed. Corporations can take it a step further and examine compensation differences across the dimensions mentioned in (b).
  5. Companies are mandated to train employees on human rights. Going beyond this requirement, corporations can provide training on ethics, integrity, and the core principles of the Constitution.
     • They can disclose their efforts in being model corporate citizens.

Conclusion

• Social harmony is an essential prerequisite for the long-term prosperity of corporations. Corporations must recognize that the 'S' in ESG is not merely a checkbox to be filled but a critical aspect that impacts their survival and success.
• By voluntarily disclosing employee-related information and taking proactive steps to address societal concerns, companies can contribute to creating a more equitable and inclusive society while also gaining a competitive advantage.
• It is time to embrace the 'S' in ESG and prioritize social well-being alongside environmental and governance considerations.

Source: The Business Line

Mains Question:

Q. How can companies contribute to social harmony and address various aspects such as employee diversity, discrimination reduction, employee safety and health, ethical sourcing, and positive community relations within the framework of ESG (Environment, Society, and Governance)? (250 words)