Sustainability forms the core of corporate sustainability and is of utmost concern to all the stakeholders. There has been a growing awareness among the corporates to address environmental, social and governance (ESG) issues to contribute towards sustainable development. The development of sustainable organisations by improving environmental and social performance has become a global challenge for businesses around the world (Marrewijk 2003). There have been many studies addressing the need for incorporating sustainability into core business strategy (Dyllick and Hockerts 2002; Salzmann et al. 2005; Weber et al. 2008). Banking sector plays a crucial role in promoting sustainable development as it acts as an intermediary in the development of economy (Jeucken and Bouma 1999; Scholtens 2009). Prior literature shows that initially sustainable practices of the banks were confined to internal environmental management practices for energy efficiency, less resource consumption, and low carbon emission (Babiak and Trendafilova 2011), later complemented with the integration of environmental issues in lending and financing activities in the banking operations (Scholtens 2006; Johnsen 2003). The paradigm shift in the banks strategies to integrate environment, social and governance (ESG) issues in banking operations is crucial for moving towards sustainable development (van Gelder 2006). The banking sector is increasingly implementing sustainable banking practices as an important tool to address sustainable development issues (IFC 2007). The adoption of innovative sustainable products & services by the banks has witnessed tremendous growth in the recent years (Krosinsky and Robins 2008). The emergence of nonfinancial reporting through BRR, SR, CSR report and the likes, in the past two decades has been an attempt by the organizations to engage all the stakeholders in information dissemination and communicate nonfinancial performance of the business on environmental & social issues (Khan et al. 2009). Various frameworks, guidelines and standards have been evolved nationally and internationally like National Voluntary Guidelines (in India), Global Reporting Initiative (GRI), United Nation Global Compact (UNGC) principles, ISO 14001 and ISO 26000 which are widely adopted by organisations to improve social & environmental performance (Isaksson & Steimle 2009; Gupta & Mohanty 2014; Mitra & Schmidpeter 2017). Range of studies have been conducted in the field of sustainability reporting especially, in developed and developing economies (see, Willis 2003; Frost et al. 2005; Raman 2006; Roca & Searcy 2012; Khan et al. 2009; Ghosh 2017), but there is scant empirical research on the extent of sustainability reporting by Indian companies. The content of nonfinancial reporting particularly in the Indian banking sector too is understudied. It is in this context, this study attempts to answer following questions. How the banks in India report their sustainable practices? Is there any variation in the sustainability reporting practices of PSBs and private sector banks in India?
This study identifies three broad dimensions of sustainability disclosure practices through review of literature on sustainability reporting trends and prominent sustainability reporting frameworks. It further examines the performance/compliance of the banks to each of the identified indicators. Next, this study examines whether sustainability reporting by public sector banks (PSBs) and private sector banks in India specifically consider the major indicators provided in sustainability-related disclosure guidelines such as GRI G4 guidelines, and NVGs.
The following paper is organised under five sections. The first part which is already discussed is the introduction followed by the second section which provides an overture of various prominent guidelines & standards of sustainability disclosure and review of literature. The third section discusses recent initiatives taken by India to incorporate sustainable practices in businesses followed by a brief overview of banking sector in India. The fourth section provides the purpose of the study, research methodology, analysis and findings. Fifth and final section discusses the conclusion, research implications and limitations of the study.
The emergence of GRI guidelines, UNGC principles, NVGs, and their role in promoting corporate sustainability
In the past two decades, various standards frameworks and guidelines have been developed that helps the business organizations to understand and incorporate the critical sustainability issues into their corporate strategy. The GRI guidelines, UNGC principles, and NVGs are widely adopted by the business organisation to enhance the understanding and adoption of sustainability reporting practices (Weber et al. 2014). The driving spirit behind these guidelines and principles is to make business organisations more responsible and drive them towards sustainable development. The companies adopting these principles and guidelines need to disclose information about their economic, environmental and social performance.
Global reporting initiatives (GRI)
GRI was established in 1997 as a non-profit independent organisation in Boston USA, to enable the business organisations to assess and disclose economic, environmental and social performance. GRI is the most widely used standard for sustainability reporting by business organisations. It has been adopted by almost 93% of the world’s largest 250 corporations across 100 countries (GRI 2018). It helps the companies to not only disclose nonfinancial performance but also encourages them to manage the impact of their activity on environment and reflect how they contribute towards sustainable development (Sethi 2017).
United nation global compact principles
The UN Global Compact’s ten principles are derived from; The Rio Declaration on Environment and Development, Universal Declaration of Human Rights, The International Labour Organization's Declaration on Fundamental Principles and Rights at Work, and The United Nations Convention Against Corruption. It encourages the companies to adopt a principle-based approach to incorporate sustainability by embracing the core values of human rights, labour standards, environment, and anti-corruption.
National Voluntary Guidelines (NVGs)
It is the most progressive framework for responsible business conduct and corporate sustainability in India. These guidelines were the result of the need for standardised framework in Indian context similar to other internationally accepted sustainability reporting frameworks (Mitra & Schmidpeter 2017). The basic rationale behind these guidelines is to provide a platform to companies in India to adopt and disclose their environmental and social performance through reporting of NVGs.
Sustainability reporting
The need for corporate sustainability and reporting of sustainable practices has acquired a pivotal importance in the past two decades. Disclosure of environmental and social performance has become an integral part of the company’s overall business strategy (Ghosh 2017). Nonfinancial performance disclosure in the form of CSR reports, BRR and Sustainability reports are perceived as strong commitment of the organisations towards adoption of sustainable practices by various stakeholders (Raman 2006). The nonfinancial reporting by companies started with disclosure of socially responsible practices followed by environmental performance disclosure as a part of corporate social responsibility reporting (Jenkins & Yakovleva 2006). The concept of nonfinancial reporting has been continuously evolving over the past three decades. Companies have now evolved the structure of non financial reporting from a miniscule couple or more sections in the annual report of the company to separate sustainability reporting. Such extensive reports involve complete disclosures of social and environmental performance of company’s operations (KPMG 2017). Business organisations have become more responsible and have adopted international guidelines on sustainability reporting like GRI. This creates benchmarks and higher levels of transparency in the disclosure (Milne & Gray 2007). According to KPMG (2015), more than 95% of the 250 world’s largest corporations publish sustainability reports. Various researches also suggest that organisations can benefit in many ways from CSR/sustainability reporting (Healy et al. 1999; Khan et al. 2009). There has been extensive research in developed and developing countries highlighting the nature and content of CSR disclosure of companies (like Gray et al. 1995; Willis 2003; Frost et al. 2005; Raman 2006; Roca & Searcy 2012; Khan et al. 2009; Boiral & Henri 2017; Ali et al. 2017).
Recently there is increased consciousness to adopt and report sustainability issues in financial institutions (Khan et al. 2009). Islam et al. (2016) noted that banks have exhibited conscious efforts to comply with environment related regulations and disclosure of environment management policy to incorporate environmental considerations in banking operations. The disclosure of environmental management policy is an integral part of sustainability reporting (Lock & Seele 2015). Banks are increasingly engaged in implementation of environment management system as it leads to reduced resource consumption and costs optimisation (Sahoo & Nayak 2007; Jizi 2014; Ihlen et al. 2014; Chaklader & Gulati 2015). Jeucken (2001) stressed on the disclosure of both qualitative and quantitative data on environmental care practices undertaken by banks in their nonfinancial reporting.
In sustainability reporting literature, social conduct of the financial institutions is most commonly measured through the extent of disclosure of various sustainability indicators in nonfinancial reporting i.e. community development programs, health care programs and training and development programs (Frost et al. 2005; Raman 2006; Murthy 2008; Belal 2008; Adams et al. 2008; Kopnina 2017). Banks are increasingly reporting financial literacy and financial inclusion initiatives as part of their nonfinancial disclosure to communicate socially responsible business conduct to various stakeholders (Kamath 2007; Sarma & Pais 2011). The disclosure of policies related to business ethics/values and human rights is an important tool to upturn transparency and sustainability performance of banking institutions (Jeucken 2001; Scholtens 2009). Islam et al. (2016) emphasised that implementation of anti-corruption and decent labour practices is essential to improve sustainability performance of financial institutions. Khan et al. (2009) noted that sustainability practices like environment management system, community development initiatives, business ethics, human rights and environmental policy are the basic content of global frameworks on sustainability such as GRI, UNGC principles etc.
Prior researches on CSR reporting in India
In one of the studies in the past century, Singh and Ahuja (1983) studied thirty three items of social disclosure in the annual reports of 40 public sector companies in India using content analysis. Porwal and Sharma (1991) conducted a study on public and private sector companies in India and concluded that private sector companies made lesser disclosure as compared to public sector companies. Raman (2006) analysed the extent and nature of social reporting of top 50 companies in India by studying how top management perceives CSR and CSR report. It was found the community involvement is a key component in the social reporting and more emphasis is placed on development of human resource. Chaudhri and Wang (2007) examined CSR disclosure of top 100 IT companies in India and found that CSR disclosure was considerably low and companies have not been able to leverage in terms of style of communicating CSR on to their websites. The quantity of CSR disclosure too is a question of concern. Murthy (2008) examined the annual reports of top 16 IT companies in India using content analysis and concluded that community development activities were the most common disclosure practices, then followed by environmental activities in the CSR reporting. Sustainability reporting in India is still in nascent stage and corporate sector is yet to fully recognize the relevance of CSR reporting for building a corporate reputation in a highly transparent market environment (Ghosh 2015). Ghosh (2017) also conducted empirical study on CSR reporting of select companies from 2009 to 2014 and analysed the CSR reporting practices for pre and CSR reporting mandate onset period. It was found that average CSR activities disclosure has increased in social reporting but still few companies publish a sustainability report separately. Jain & Winner (2016) examined CSR/ sustainability report of 200 largest public and private sector companies in India and concluded that standard CSR/sustainability reporting is still low but shows positive signs of reforms. Kumar & Kidwai (2018) conducted research on CSR disclosure of top 100 ET (2014) companies. It was found that only eight companies showed high transparency in their CSR disclosure and the companies focus heavily on social initiatives and human resource oriented activities in their disclosure. According to KPMG (2017) India has emerged as the top CSR reporting country along with Japan and Malaysia in Asia. CSR reporting by the companies has seen an improvement following the implementation of CSR rule of Indian Companies Act 2013. Education and health spending has been the major focus of companies CSR reporting. However, the quality of disclosure in CSR reporting is yet questionable and needs improvement.
Although CSR reporting by companies in India has witnessed an upsurge, the disclosure of sustainability report is in infant stage (Goel & Misra 2017). Given the role of banking sector in promoting sustainable development, it is pertinent to examine the current status of sustainability reporting practices in Indian banking sector.
Initiatives taken to promote corporate sustainability in India
The following discussion lists out the steps taken by The Government of India (GOI) to address sustainability issues in corporate conduct in the recent past. With a view to review the CSR practices and to ensure responsible business conduct at par with the global frameworks on sustainability (for example GRI, CDP), the Ministry of Corporate Affairs Government of India established National Voluntary Guidelines (NVGs) based on social, environmental, and economic responsibilities of business in July 2011. Following this, The Securities Exchange Board of India (SEBI) in August 2012 made it mandatory for top 100 BSE and NSE listed companies to disclose their CSR initiatives and adherence to the NVGs framework through their business responsibility reports (SEBI 2012). In 2013, India took a lead and has become the first country in the world to legislate spending of profits on CSR activities. Section 135 of Indian Companies Act, 2013 mandates all companies operating in India with a minimum net worth of Rs 500 crore or turnover of Rs 1000 crore or the net profit of at least Rs 5 crore, to spend at least 2% of their profits of the last three proceeding years on CSR activities. Schedule VII of Indian Companies Act 2013 specifically provides the list of ten activities where a company can spend to deliver its CSR obligations. The companies have to constitute CSR committee comprising three or more Board of Directors, responsible for preparing the CSR policy and review the practices undertaken by the company as per their CSR policy. The Reserve Bank of India (RBI) is also working on formulating policy framework for green financing to align Indian banking sector with other nations already having such policies (RBI working on green finance framework 2017). Rajput et al. (2013) noted that banking industry in India is running far behind when it comes to adoption of sustainability issues. It is high time to takes some major steps to gradually adhere to the international principles, guidelines that provide environmental and social performance parameters apart from financial viability criteria in project financing. The RBI notification, dated 20th November 2007 (RBI 2007–2008/216) highlighted banks need to act with responsibility and contribute to sustainable development so that the adverse impact on the environment can be reduced. RBI also advised banks to formulate an appropriate and efficient action plan with the approval of their respective board for helping the cause of sustainable development in India.
Overview of Indian banking sector
The Indian banking system is broadly classified into five categories- public sector banks (PSBs), private sector banks, foreign banks, regional rural banks (RRBs) and co-operative banks enshrined in the second schedule of Reserve Bank of India Act, 1934. There are 21 PSBs, 21 private sector banks, 43 foreign banks, 56 RRBs, 1589 urban cooperative banks and 93,550 rural cooperative banks (RBI 2017). In FY 2017, total banking sector assets in India aggregate to US$ 2.202 trillion and have increased at a CAGR of 8.83% between FY 2013 to 2017. The PSBs and private sector banks in India account for more than 90% of the total banking assets (RBI 2017). The PSBs occupy most dominant position in commercial banking in India. In term of total banking system assets, PSBs account for more than 70% (US$ 1.52 trillion) of the total banking assets, thereby leaving comparatively smaller share for private sector banks and foreign banks (RBI 2017). Traditionally, the burden of social development has largely been shouldered by PSBs and they have been in the forefront of channelizing financial resources from remote areas as well as expanding the outreach of banking services in the remotest part of the country (Chaudhary & Sharma 2011). Both PSBs and private sector banks have played a crucial role in meeting the resources required for a rapidly growing Indian economy and have been the main source of credit for various sectors of the economy (Kumar et al. 2016).