Podcast transcript: The essence of “S” in ESG

10 min | 07 December 2022

Sayooj Thekkevariath
EY India Climate Change and Sustainability Services Partner

Silloo Jangalwala: Hello, this is Silloo, welcoming you to a new episode of the fortnightly EY ESG podcast, where we look at the most important issues that India Inc needs to deal with in its environment, social and governance (ESG) journey. Today, we look at the essence of ESG or the social part of the sustainability journey, with an emphasis on community impact or CSR.

Though there is more attention on the environment related steps that a company takes, the responsibilities of a corporation towards communities and society at large are equally important. Indeed, it has probably become even more important after two years of the pandemic to explain how things have changed and discussed the changing CSR landscape in India. Today, we have with us Sayooj Thekkevariath, Partner, ESG, Climate Change and Sustainability Services at EY. 

Silloo: Sayooj is an expert in ESG and has helped deliver high-quality performance in areas of sustainability, climate change adaptation and mitigation, supply chain sustainability, sustainability disclosures, carbon footprint, IHS audits, social and environmental due diligence, and resource efficiency. Welcome to the podcast, Sayooj. 

Sayooj: Hi Silloo, thank you for inviting me. The essence of the ‘S’ in the ESG is all about taking care of your employees, value chain partners, and the community at large. The pandemic has emphasized this. Today, organizations are taking a relook at their policies, employee benefits, and the CSR focus areas to align them with the new ways of working in the post-COVID-19 era.

Silloo: That is true, Sayooj. So let me start with the basics. According to you, how has the CSR landscape in India evolved over the years?

Sayooj: If you look at Indian businesses, philanthropy is ingrained in them. Corporate houses and individuals have always carried out CSR through philanthropic activity. But what used to happen is that while CSR activities or programs were implemented on ground, monitoring, and measuring their impact was probably not that common.

Over the last decade or so, we see a clear shift: philanthropic CSR moving to a more strategic CSR or a shared value model of CSR. Driving profits while integrating societal issues into the business strategy is just one part of strategic CSR. Even from a regulatory standpoint, you may be aware that India was the first country to legally mandate CSR to the Companies Act, 2013 for companies with a certain turnover as 2% of their average net profit for the past three years. But the regulation also brought in emphasis on having a CSR committee, a clear board oversight, a CSR policy strategy, and in fact disclosing all of it as part of the annual reports and probably even on the websites. So, the amendments over the years have helped streamline the entire focus area, impact, and spend, and most importantly, it has led to a robust government mechanism.

Silloo: But are these rules restricting or supporting the companies? 

Sayooj: In my view, they are not restrictive because they drive companies to pursue their CSR activities more professionally or in a more structured manner with increased transparency, with a robust monitoring and evaluation mechanism, and shift to a more inclusive and participatory approach of planning and execution. It is a collaborative approach; a convergence of business imperatives and social needs. So, I do not see this being restrictive in any manner.

Silloo: How should organizations prepare to face these changes?

Sayooj: It is important for organizations to review and understand the rules and all the amendments. As most CSR programs are implemented through an NGO or an implementing agency, it is very important to carry out due diligence or a review of these implementing agencies, at least on an annual basis.

The rule clearly explains what is permissible and what is not permissible, for instance, contribution to a political party or direct benefit to employees or deriving market benefits. 

So, while reviewing the programs, companies must look at the whole idea. It is not just about coming up with a CSR strategy, but also clearly calling out what the action plan is. This is what CSR means to me. This is what I'm going to be doing. These are my focus areas and the action plan, how I'm going to implement it on  ground. That is something all organizations should look at.

Moreover, as I said earlier, there is the whole idea of reviewing or monitoring, technical as well as financial. There should be periodic checks and balances of the amount being spent. How it is being spent? What are the activities on ground? Is there any support required? Are there any red flags? This should be done so that you are not caught at the last minute trying to understand what went wrong. Continuous monitoring and review of the program is very important. 

Lastly, one of the recent amendments talks about carrying out impact assessments of the CSR programs itself. While the amendment does talk about a certain criterion to select projects, but I think as a best practice, it's always good to understand what the return has been on every rupee spent. So, it is probably a good idea to carry out a social return on investment, an SROI study. Companies must look at a social impact assessment. While all these points are coming out more from the rules of the policy, going beyond the rules, companies must also look at capacity building of the partners or the NGOs because all of them may not be at the same level of maturity and skill. For example, capacity building through digital tools. This is because digital tools could not only help in improving the data capture reporting for your projects but also help the partner develop their skills or maybe support them by putting together a framework on how to run an entire program.

So, these are some points that companies need to keep in mind,  from a regulatory point of view and otherwise.

Silloo: This is great information, Sayooj. How do you expect corporate social programs to evolve in the near future?

Sayooj: Globally, there is a clear emphasis and shift toward ESG itself. The expectation is that organizations must take a relook at their social programs. Some of the questions that need to be answered while developing or devising your strategy are: does it contribute to my overall ESG agenda? Is it aligned with my strategy and commitment? Is it going to create a shared value? How engaged are my stakeholders? And finally, am I creating an impact? How am I creating an impact? 

If organizations can answer these questions, there will be a shift in the way CSR social programs are developed and implemented, for instance.

Let us take the example of a circular economy. It comes across as a corporate or a business agenda. But involving communities will ensure closing the loop where it is most impactful and required. What we see is a shift from a strategic and aligned to the larger environment, social and governance (ESG) agenda. Globally, this shift is bound to happen. 

Silloo: Excellent! Thanks a lot for sparing time, Sayooj. I really enjoyed the conversation today, which has added a lot of value to my understanding of this subject.

Sayooj: It was an interesting conversation. Thanks once again.