Investors in India are being urged to take more account of corporate social responsibility issues, viewed as a potential threat to the country’s competitiveness.
As India’s economy powers ahead, fuelled by globalisation and the outsourcing of key IT functions to India, a study is being launched to pave the way for SRI in the country.
The study, by The Energy and Resources Institute (Teri), an organisation that fosters sustainable trade between India and Europe, will look at how investors can take account of governance and ethics considerations, as well as issues such as labour standards, environmental management, energy use and community impacts when they choose their investment projects.
According to the Reserve Bank of India, the country’s economy is set to grow by 8.1 per cent in 2005-2006, while foreign direct investment in 2004-05 was $5.6bn, up from $4.3bn a year earlier. But foreign companies investing in India have found themselves in the spotlight.
Coca-Cola, one of the country’s largest foreign investors, has faced a campaign by protesters who claim that its bottling plants have polluted nearby ground water and soil, depleted local water supplies and that its products contain high levels of pesticides.
"There has been a lot of talk in India about corporate social responsibility (CSR) reporting, but nothing has been done so far," said Ritu Kumar, director of Teri-Europe. The standard of corporate governance is a key area that investors need to address, she said, while social issues include labour standards and discrimination. "There is a big debate in India at the moment after the PM said the private sector would have to set aside a certain amount of jobs for ‘scheduled castes’ in the same way the public sector does."
Key issues for the environment are energy and water. "Water is already scarce in India, and rapid economic growth is going to further increase the pressure on supplies," said Ms Kumar.
India is seen as an attractive investment target, Ms Kumar says, but poor CSR is viewed as a threat to the country’s competitiveness. "Environmental, social and governance issues are not being given due consideration by investors, even though they are important. Legislation is quite stringent in India, but enforcement has been very weak. This has led to the judiciary stepping in to make companies put things right. This adds another layer of risk to investment in the Indian economy."