The New 3 ‘E’s of Business

On 24th February 2018 majority of the business and finance dailies in India carried an article where they quoted the Indian Finance Minister, Mr. Arun Jaitely, saying that India need to re-strategize its business model from ‘ease of doing business’ to ‘ease of doing ethical business’ in India.

This is quite an important sound-bite given India’s sliding reputation for actions in the corporate world with a series of scams hitting newspaper headline almost on a daily basis during past weeks.

Ethics in business is a significant topic of public debates and academic research that calls for transparency, accountability and integrity by the corporate world.

Turn to majority of confederations and business grouping – all call for ethics and to a small extent equity in doing business but walking the talk seem to be a challenge to majority of them.

Now, what are the 3 ‘E’s, businesses in a country like India, need to adopt.

Ethics, Environment, Economics!

I did intentionally put them in the above order though I am aware that business means economics and profits to many now.

If one considers doing ethical business, the concern for safe-guarding our environment will be a result. If one does environmentally-sound business, the economics will fall in place.

But how do we reverse the order of priorities for business, where ethics is seen as a personal value and hence has little impact on shareholders (in at least several countries), environment is more the tick-the-box aspect (more to please the regulators) and economics form the only foundation for future business.

When I organized a meeting in 2012 for banking sector on mainstreaming environment into the banking and finance sector, then as Chairman of the National Biodiversity Authority, Government of India, I was surprised to find that no more than one bank that has signed up the ‘Equator Principles’ and majority of the public-sector banks vaguely have heard about them.

Perhaps the Principles are seen as something pushed down the throats by some outsider than as principles to be used for doing fair business.

I was reading the report published by the Task Force on Climate-related Financial Disclosures on their recommendations for helping business disclose climate-related financial information.

In most G20 jurisdictions, companies with public debt or equity have a legal obligation to disclose material information in their financial filings—including material climate-related information.

Today, listings in both Dow Jones and NASDAQ require strict and robust sustainability and environmental compliances. There are very few countries requiring their businesses to comply with such provisions.

Though there are several such principle-based business standards being set, such as the sourcing with pride standards of Union for Ethical Biotrade, the forest stewardship council standards, the fair-trade practices and others, a large number of them are seen those belonging to the western world where there is no problem of affordability. This mind-set has to change.

Though the Reserve Bank of India has issued guidelines for environmental sustainability for the banking and finance sector, a majority of the institutions do not comply with them with rigor. It is only recently that a few of the public-sector banks in India have sustainability officers whose portfolio align with risk managers than focusing on true sustainability.

How do we ensure that our businesses follow the 3 ‘E’ principles, in the same order – Ethics, Environment and Economics.

  1. India, especially the finance as well as commerce and trade ministries need to come up with a framework for doing ‘ethical business’, having guidelines for individual sectors;
  2. Trade and taxation policies and laws need to strictly consider the ethical means of doing business as a key fundamental than reviewing the books just for numbers;
  3. Social consciousness need to be built to ensure businesses follow the principles. The millennials now are better prepared to respond than the previous generation to such actions;
  4. Shareholders need to sign a declaration that their investments and expectations of return to investment be based on doing the business using the 3 ‘E’ approach;
  5. Both public and private sector businesses need to be more transparent and accountable, with public information made available on a half-yearly basis, for review of their business standards;
  6. Legal provisions such as the CSR laws should be better understood and complied with where the government should make compliance more robust and transparent than water down implementation of CSR laws as mere tick-the-box approach. The current approach of compliances defies the purpose of the enactment, in India; and
  7. Investors, big or small must be aware of the standards, principles and actions undertaken by businesses. After all, they define the viability of the sectors.

1 thought on “The New 3 ‘E’s of Business”

  1. Dear Dr Pisupathi – you have flagged a very important issue that is most relevant for us in India. Thank you. I was a bit tied up with the hectic work here and hence the delay in accessing this. I look forward to reading this blog regularly. All my good wishes for Fledge

Leave a Reply

Your email address will not be published. Required fields are marked *