Business Valuation

National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business (NVGs)

In today’s globalized world, businesses play a critical role in shaping societies and economies. As consumers and stakeholders become increasingly conscious of the social, environmental, and economic impact of businesses, there is a growing demand for responsible business practices. In response to this, many countries have developed voluntary guidelines to encourage businesses to adopt sustainable and ethical practices. One such example is the National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business (NVGs), which aim to provide a framework for businesses to operate responsibly and contribute positively to society and the environment.

THE NATIONAL VOLUNTARY GUIDELINES (NVGS)

The NVGs were introduced by the Government of India in 2011 and provide a set of principles and guidelines for businesses to follow in order to fulfil their social, environmental, and economic responsibilities. The guidelines are voluntary in nature, meaning that businesses are not legally obligated to follow them, but are encouraged to do so as part of their corporate social responsibility (CSR) efforts.

Mandate and process: The Guidelines on Corporate Social Responsibility in India were developed by a Guidelines Drafting Committee (GDC), which comprised professionals representing various stakeholder groups. The GDC was appointed by the Indian Institute of Corporate Affairs (IICA)^[1] and tasked with creating guidelines that provided an Indian approach to balancing the unique requirements of the country. The development process relied heavily on developing a consensus among various stakeholder groups, with active engagement from leading trade and industry chambers represented in the GDC.

Applicability: The Guidelines for Responsible Business Conduct in India are applicable to all businesses, regardless of size, sector, or location. The document is designed to touch on the fundamental aspects or the “spirit” of an enterprise, and it is expected that all businesses in India, including multinational companies, will consciously work towards following them. The Guidelines provide a framework for responsible business action for Indian MNCs planning to invest or already operating in other parts of the world. Business leaders and managers are encouraged to extend the Guidelines across their value chains and to adopt each of the nine principles in their entirety rather than picking and choosing what suits them.

KEY PRINCIPLES OF THE NVGS

The NVGs are based on nine key principles that cover various aspects of responsible business practices:

Principle 1: Businesses should conduct and govern themselves with Ethics, Transparency and Accountability

This emphasizes the importance of ethical conduct, transparency, and accountability in business operations. It recognizes that businesses should establish governance structures, procedures, and practices that promote ethical behaviour at all levels and throughout the value chain.

Principle 2:Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle

It recognizes that all stages of the product life cycle have an impact on society and the environment and that responsible businesses should engineer value in their goods and services by considering these impacts.

Principle 3:Businesses should promote the well-being of all employees

This principle emphasizes the importance of promoting the well-being of all employees engaged in a business or its value chain. It encompasses all policies and practices relating to the dignity and well-being of employees, including those working within or outside of the business’s boundaries.

Principle 4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized.

This principle recognizes that businesses have a responsibility to go beyond the interests of their shareholders and include all stakeholders.This involves systematically identifying stakeholders, acknowledging and taking responsibility for the impact of business operations on them, giving special attention to underdeveloped areas, and resolving differences in a just and equitable manner. By prioritizing the interests of all stakeholders, businesses can demonstrate their commitment to responsible and ethical conduct.

Principle 5: Businesses should respect and promote human rights

This principle emphasizes that businesses have a responsibility to respect and promote human rights. Human rights are the agreed standards of treating others with dignity and respect, and businesses can use them as a legitimate framework to manage risks, seize opportunities, and compete responsibly. This principle is based on the Constitution of India’s provisions for fundamental rights and directive principles of state policy, as well as the Universal Declaration of Human Rights, in which India played an active role. It also acknowledges the United Nations “Protect, Respect, Remedy” framework and the corporate responsibility to respect human rights.

Principle 6:Businesses should respect, protect, and make efforts to restore the environment

This principle emphasizes the importance of environmental responsibility for sustainable economic growth and the well-being of society. Businesses should understand and be accountable for the direct and indirect environmental impacts of their operations, products, and services and make efforts to make them more environmentally friendly. This encourages businesses to address environmental issues such as global warming, biodiversity conservation, and climate change comprehensively and systematically. It also urges businesses to follow the precautionary principle, which means not going ahead with a particular action if its adverse impacts are uncertain.

Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner.

The principle recognizes that businesses operate within the specified legislative and policy frameworks prescribed by the Government, which guide their growth and also provide for certain desirable restrictions and boundaries. The principle acknowledges that in a democratic set-up, such legal frameworks are developed in a collaborative manner with the participation of all the stakeholders, including businesses. This recognizes the right of businesses to engage with the Government for redressal of a grievance or for influencing public policy and public opinion. The principle emphasizes that policy advocacy must expand public good rather than diminish it or make it available to a select few.

Principle 8: Businesses should support inclusive growth and equitable development

The principle emphasizes that businesses should support inclusive growth and equitable development in India, building upon the government’s development agenda. The principle encourages businesses to innovate and contribute to the development of the country, especially for disadvantaged, vulnerable, and marginalized sections of society. Collaboration among businesses, government agencies, and civil society is also highlighted, and the principle underscores that business prosperity and inclusive growth are interdependent.

Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner

The principle involves creating safe, competitively priced, easy-to-use goods and services and mitigating the long-term adverse impacts of excessive consumption on individuals, society, and the planet. The principle acknowledges that customers have the freedom of choice in selecting goods and services, and businesses must strive to meet their needs in a responsible manner.

Benefits of Following the NVGs

Adopting the NVGs and practising responsible business behaviors can bring several benefits to businesses, including:

1. Enhanced Reputation: Following the NVGs can help businesses build a positive reputation as responsible corporate citizens, which can enhance their brand image and attract customers, investors, and other stakeholders.
2. Improved Stakeholder Relations: Practicing responsible business behaviors can help businesses build trust and maintain positive relations with their stakeholders, including employees, customers, suppliers, and local communities, which can lead to long-term sustainability.
3. Risk Mitigation: By adopting environmentally sustainable and socially responsible practices, businesses can reduce their exposure to risks such as legal liabilities, reputational damage, and supply chain disruptions.
4. Innovation and Competitive Advantage: Embracing responsible business practices can stimulate innovation and creativity, leading to the development of new products, services, and business models that can create a competitive advantage in the market.
5. Alignment with Global Goals: Following the NVGs can help businesses align their operations with the United Nations Sustainable Development Goals (SDGs), which are a set of global goals aimed at addressing social, environmental, and economic challenges such as poverty, climate change, and inequality. This alignment can enhance a business’s contribution to global sustainability efforts and create a positive impact on society.

Challenges and Limitations of the NVGs

While the NVGs provide a comprehensive framework for responsible business practices, there are also challenges and limitations associated with their implementation. Some of these challenges include:

1. Lack of Legal Obligation: Since the NVGs are voluntary in nature, there is no legal obligation for businesses to follow them. This can result in varying levels of compliance and may limit the effectiveness of the guidelines in promoting responsible business practices.
2. Limited Awareness and Capacity: Many businesses, especially small and medium-sized enterprises (SMEs), may have limited awareness of the NVGs or lack the capacity to implement them effectively. This can hinder their ability to adopt responsible business practices.
3. Resource Constraints: Implementing responsible business practices may require additional resources, such as financial investments, technical expertise, and infrastructure, which may pose challenges for some businesses, especially the with limited resources.
4. Monitoring and Reporting: There may be challenges in monitoring and reporting the compliance of businesses with the NVGs, as there is no standardized reporting mechanism. This may make it difficult to assess the actual impact of the guidelines on business practices.
5. Complex Supply Chains: Businesses with complex supply chains may face challenges in ensuring that their suppliers and partners also adhere to responsible business practices as per the NVGs, which can pose challenges in achieving end-to-end sustainability in the value chain.

Recommendations for Businesses

To effectively implement the NVGs and overcome the challenges associated with responsible business practices, businesses can consider the following recommendations:

1. Incorporate Responsible Business Practices in Corporate Strategy: Businesses should integrate responsible business practices into their overall corporate strategy, setting clear objectives, targets, and action plans aligned with the principles of the NVGs. This can help ensure that responsible business practices are embedded in the core operations of the company.
2. Build Awareness and Capacity: Businesses should invest in building awareness and capacity among their employees, suppliers, and partners about the NVGs and responsible business practices. This can be achieved through training programs, workshops, and communication campaigns to promote a culture of sustainability and responsible business practices.
3. Foster Stakeholder Engagement: Businesses should actively engage with their stakeholders, including employees, customers, investors, communities, and civil society organizations, to understand their expectations, concerns, and feedback on responsible business practices. This can help in building trust, fostering dialogue, and addressing any potential issues proactively.
4. Implement Robust Monitoring and Reporting Mechanisms: Businesses should establish robust monitoring and reporting mechanisms to track their progress in implementing the NVGs. This can include setting up key performance indicators (KPIs), conducting regular audits, and preparing transparent and comprehensive sustainability reports to demonstrate their commitment to responsible business practices.
5. Collaborate and Innovate: Businesses can collaborate with other stakeholders, such as industry peers, government agencies, academia, and civil society organizations, to share best practices, knowledge, and resources to address common sustainability challenges. Businesses should also foster innovation to develop new sustainable solutions, technologies, and business models that align with the principles of the NVGs.
6. Embed Responsible Supply Chain Management: Businesses should implement responsible supply chain management practices by assessing and monitoring the social, environmental, and economic performance of their suppliers and partners. This can include conducting due diligence, setting standards, and providing support to suppliers to improve their sustainability performance.

Conclusion

The NVGs provide a comprehensive framework for businesses to adopt responsible business practices and contribute to social, environmental, and economic sustainability. By following the principles of the NVGs and implementing recommended measures, businesses can make positive impacts on society, the environment, and their own operations. It’s crucial for businesses to proactively embrace responsible business practices and fulfill their role as responsible corporate citizens to create a more sustainable future for all.