Why are these numbers important?
Increasingly, the fundamental consideration influencing investment is expanding to encompass financial returns and non-financial performance relating to environmental, social and governance issues.
This growing trend in financing, which takes ESG into account, is qualified as âresponsible financeâ or âsustainable financeâ. In a globalized Indian economy, financial capital flows expose domestic and international institutional investors to Indian businesses. Beyond labor laws that aim to protect the interests and rights of workers, company ESG information is indicative of the non-financial health of companies. These are collected by the investors who decide where the money goes.
The story, however, is not so linear both in terms of the rights approach and the flow of investment.
This weakening is reflected in the ‘ease of doing business’ both as a new paradigm of a developmental approach and as a defeat of the social economy to promote the traditional form of investment, i.e., oriented towards financial profit. Therefore, disclosures like the BRSR are influenced by political will and the state’s inclination to empower its citizens.
The question is what next? How to correct these market failures?
First, investors’ financial decisions based on ESG indicators can persuade companies to perform and disclose their data. Interviews with investors, both domestic and international, highlight the demand for remedial action for violations and require a third-party audit of the BRSR in the Oxfam India report.
Second, the state must regulate better working conditions for workers in India in order to indirectly hold companies accountable. The BRSR in its current form can at best complement laws and regulations that are systemic and apply to all actors. In the absence of this, it is simply a measure of business performance on a case-by-case basis.
Compliance and corporate commitment to protect labor and human rights can only be determined if the state shows greater leadership through regulatory measures that require remedial solutions. The BRSR cannot be isolated from the legal framework which has stronger teeth to guarantee workers’ rights.