Corporate Governance and Sustainable Development: Connecting the Dots

What is corporate governance? It is a set up based on certain systems and principles by which a company is governed. These guidelines ensure that the company is directed and controlled in a way so as to achieve the goals and objectives of the company, add value to the company and also benefit the stakeholders in the long term. It safeguards interest of the management as well as stakeholders.

The corporate governance practices in India emphasize the functions of finance and audits by legalizing the same in The Companies Act 2013. It also ensures moral and ethical implications of these functions. And to some extent by introducing CSR (Corporate Social Responsibility) companies are required to make contribution towards economic, social and environmental development. A development at the cost of environment is anti development.

A development has to be sustainable development. Sustainable development, according to the definition by World Commission on Environment and Development, simply refers to “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

The general misconception is that sustainable development is only about environmental issues and is the business of government, non-governmental organizations, local authorities, and so on. Companies should not bother about sustainable development issues. This is wrong. Sustainable development applies to all, including companies.

The Companies Act, 2013 makes India the first country to mandate and quantify CSR expenditure for the companies which either has net worth of Rs 500 Crore or a turnover of Rs 1000 Crore or net profit of Rs 5 Crore. It requires these companies to spend at least 2% of its average net profit of immediately three preceding years for Corporate Social responsibility activities. Apart from social obligations Schedule VII enlists environmental sustainability, ecological balance, agroforestry, conservation of natural resources and maintaining quality of soil, air and water.

Even though the link between sustainable development and corporate governance may not look obvious; it exists. Companies can not talk of good corporate governance if they do not act responsibly by balancing social, economic and environmental challenges, which form the core of sustainable development. Sustainability should be built in the DNA of companies. That is the essence of sustainable corporate governance. Companies can not look at Corporate Governance and CSR in isolation. In fact the combo termed as sustainable corporate governance works as a booster for sustainable development for the companies. Once known to be costly inconvenience has become a competitive advantage and a matter of survival. The untold secret being the concept of sustainability is intermingled with the term of sustainable development.

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