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Indian CPSEs foray into Sustainable Development
The article takes a look at the recently promulgated Sustainable Development Guidelines for Central Public Sector Enterprises and ways in which these action can be tracked to demonstrate contribution and commitment of these business entities in shaping a sustainable growth path for the nation.
Indian Government has, in the recent past, made concentrated efforts to inculcate and promote sustainability issues in growth, development and corporate initiatives. This has resulted in many public sector enterprises emerging at the forefront of the struggle to find sustainable growth paths in a country, which is both resource deficient (in terms of energy, water) and presented with significant developmental needs.
Although the raison d’etre of central public sector enterprises (CPSE) differ from private enterprises; thereby rendering the discharge of social goods and services a notch above the all-pervading goal of profit generation; increasing influence of market forces has resulted in making economic and social sustainability and independence central to PSEs.
Since the 1990s, India is pursuing the privatisation program; in addition to an attempt to make public sector enterprises more autonomous. The Board of Reconstruction of Private Sector Enterprises, established in 2004, has helped turnaround 62 enterprises through various private and public routes.
Simultaneously, the Ministry of Corporate Affairs (MoCA), has implemented mandatory policies requiring PSEs to incorporate governance and CSR into their operations.
Thus, it emerges, that a lot of PSEs are progressing upon profitability and sustainability simultaneously, aiming to shape operational practices which are inherently sustainable, as opposed to Business –As-Usual.
Sustainability and the Indian CPSE
The Department of Public Enterprises is vaulting the agenda of sustainable development in Indian CPSEs, through guidelines, consultations, policies etc. The ramped process began with the introduction of Corporate Governance Guidelines, followed by the mandatory Corporate Social Responsibility Guidelines and now, the recently presented Guidelines on Sustainable Development.
Adopting a broad and thus all-encompassing framework, these guidelines recognise sustainable development as the “development that meets the need of the present without compromising the ability of the future generations to meet their own needs and involves an enduring and balanced approach to economic activity, social progress and environmental responsibility.”
Making Sustainable Development Integral to Organisation
The Memorandum of Understanding Guidelines (MoU) of 2010 – 11 awarded a 5% mandatory weightage to sustainable development; thereby forcing PSEs to identify areas of concern / potential.
While sick and loss making units do not need to make a financial commitment and concentrate only on conservation and collaboration efforts; profitable enterprises need to make a commitment ranging from 0.05% ~ 0.1% of profit after tax; depending on the profits of the previous year.
What constitutes Sustainable Development?
In order to avoid the ambiguity that surrounds the CSR guidelines and opaqueness with regards to what constitutes CSR as also to address issues like percentage allocation in an objective manner, the DPE embarked on a long drawn process to specify “the mandate and scope of activities, projects, expenditure, documentation and monitoring of Sustainable Development initiatives of CPSEs”. The process is illustrated graphically below.
Enterprises can chose from the following core and specific items and implement projects from those suggested in the guideline or any other:
Core / Schedule A: Waste Management, Water Management, Energy Management, Bio Diversity Conservation, Energy Management and Natural Resource Management.
Specific/ Schedule B: Carbon Management, Supply Chain, External Charters/ Mandates, Life cycle analysis, SD reporting and training.
Performance tracking and evaluation is core to ensuring the commitment of the PSEs towards this Sustainable Development (SD) mandate. Typically termed as ‘Sustainability Reporting’, the SD performance evaluation documentation encompasses a wide range of parameters and offer a comprehensive way to demonstrate progress and accrued benefits.
Sustainability Reporting: Unleashing untapped opportunities?
Some sentences, often pronounced in passing, have a tendency to resonate with the listener and thus become memorable. One such thing I heard was that “problems and challenges are opportunities”.
This rings extremely true in the context of sustainability reporting, wherein the immediate challenge of scaling up activities to the level of being ‘reportable’ in fact presents a huge opportunity for enterprises to identify material environmental and social risks, as well as realise immediate cost savings by adopting a resource efficient framework.
Some key areas where tracking and reporting can enable opportunities in the short term are listed below.
Switching over to energy efficient technologies and achieving energy efficiency within existing technologies offers a fool proof way to achieve economic benefits of the same. A recent conversation I had with an energy consultant revealed that many a manufacturing unit and heavy industries could make relatively simple changes to achieve a substantial reduction in their energy consumption and bills.
The Government of India, is also trying to tap in to the potential benefits of energy efficiency through adopting a co-benefits approach. The Bureau of Energy Efficiency (BEE), has rolled out various schemes and strategies such as “The Perform Achieve and Trade (PAT) energy certificate trading scheme, The Market Transformation for Energy Efficiency (MTEE), The Energy Efficiency Financing Platform (EEFP), and the Framework for Energy-Efficient Economic Development (FEEED).
Progress on achieving energy efficiency already provides a tool for reducing Green House Gas(GHG) emissions. However, accounting for and reducing GHG emissions can result in significant cost savings. The Global Methane Initiative, of which companies such as ONGC form a part, have successfully created a viable project network, to reduce one of the most potent GHGs and realise savings. ONGC reported in its 2011 Sustainability Report that the “Work on this program is helping ONGC to monetize thebenefits of saved natural gas, increased operational efficiency, environmental performance and workplace safety. The total gas saved over the last three years (8.543 MMSCM) is equivalent to saving 121,994 tonnes of CO equivalents from emitting to atmosphere.”
CDM is a crucial tool to achieve the financial accruals of adopting energy efficient products and technologies and is also high on GoI’s agenda. The “Programmes of Activities” (PoA) initiative permits small projects to aggregate the CDM projects and reduce the transaction costs.
PSEs account for nearly 20% of the Indian GDP and have revenues rooted in the domestic Indian demand. Capacity building, through budgets directed toward community development, employee well-being and research and development is thus core to their performance and relevance to the markets they operate in.
Some instances of how opportunities were seized by some enterprises were captured in a report by Delloite.
1. Indian Oil Corporation Limited has invested in production of green fuels meeting global standards thus leading to reduction in dependence on petroleum imports and helping improve the nation’s energy security. The alternative fuels such as ethanol-blended petrol, biodiesel, andHydrogen and Hydrogen-CNG mixture are being commercialised now.
2. Coal India Limited is reclaiming mining land to make good the lost greenery and degradation of land caused by excavation of land in open cast mining, through continuous afforestation initiatives, thereby creating environmental and social benefits.
As mandatory sustainability reporting slowly seeps into operations of these enterprises, and actions begin to materialize, it remains to be seen if the Maharatnas and Navratnas of India start ringing true to their names: by emerging as true and lasting gems in the India growth story.
The author, Shradha Kapur is a Senior Associate at a sustainability consulting firm cKinetics.