Planting trees, conserving water, cutting carbon emissions — doing business today means allocating funds not just for land, facility and machinery, human resources and other assets, but also acknowledging stakeholders such as the local community and addressing concerns about the environment. The world over, progressive business entities have realised that they cannot secure economic prosperity while turning a blind eye to the social, political and environmental fallout of their decisions and actions.

Inclusive development implies that entrepreneurs and businesses have to consider not just the benefits that their ventures bring, but also the cost of disruption in the local community; for instance, the need for risk mitigation and abatement plans, where the present value of future cost has to be paid by the investor.

Although there is increasing recognition of corporate sustainability and the social-responsibility dimensions of business, the reality is that, unlike with financial matters, there is no uniform process of reporting these actions to regulators and stakeholders in a standardised, objective, comparable and quantifiable way.

Business as usual
Most of today’s sustainability reports are little more than verbose narrations of the number of trees planted, the litres of fresh water saved, the number of beneficiaries and the quantum of carbon emissions reduced. It is difficult to objectively measure impact or compare reports with other companies. Yet corporate entities around the world continue to spend huge amounts on sustainable development initiatives and community engagement and improvement programmes.

How then, in the absence of a standardised format for reporting such activities, does an organisation derive a true picture of the value or impact of sustainability activities?

Some of these questions drove the Tata group to develop, in 2003, the innovative Tata Index for Sustainable Human Development. The index was crafted by the Tata Council for Community Initiatives (TCCI), which is a nodal agency within Tata that coordinates the corporate sustainability efforts of Tata companies in collaboration with the India unit of the United Nations Development Programme (UNDP).

The Tata Index provides a way of fixing objective coordinates on a comprehensive scale. It aids in directing, measuring and enhancing the community work that enterprises undertake, and also provides a guideline for Tata companies looking to fulfil their social responsibilities. A team of internal and external assessors jointly analyse the impact on all stakeholders of an organisation’s vision, its strategies, systems and processes.

In a significant move, TCCI is now giving the Tata Index a global platform. The agency recently formed a partnership with eXtensible Business Reporting Language International (XBRL) — a consortium of regulators, financial-standards bodies and technology providers that offers an open-source, global norm for the exchange of business information — to create a social and environmental dimension, and to add significant, sustainable value, to the existing form of XBRL (see box: The lingua franca of business reporting).

The objective here is to set business reporting and information management in the context of the ‘triple bottom line’ (which is about the pillars of people, planet and profits), as well as in the larger one of integrated business reporting. TCCI has taken the framework of the Tata Index and fashioned a new lingua franca for XBRL reporting.

Says Anant G Nadkarni, vice president, group corporate sustainability, TCCI: “We are the first movers in this instance. Reporting is becoming complex because of the global reach of companies. There is a new focus on measuring sustainability activities that is just emerging, where earlier there were no measures at all.”

Going digital
The new taxonomy provides a common global digital platform for compiling, reporting and analysing information pertaining to non-financial and sustainability reporting for all entities, regulators and governments, irrespective of the sector, country of incorporation, nature of business or diversity of products and services on offer.

TCCI recently submitted its 334-element classification to XBRL’s taxonomy review task force. After following due procedure — which includes a 60-day time frame for the public to review the work — XBRL International could ‘acknowledge’ it, which will make this the world’s only standard for sustainable reporting.

Mr Nadkarni points out that the taxonomy has been specially designed keeping in mind enlightened businesses, investors, governments and regulators, so as to enable informed choices and decisions to be made.

Interestingly, the global financial crisis and the economic meltdown in many parts of the world have underlined the importance of maintaining the sustainability approach. “People messed with the very core of financial discipline and fraudulently created a bubble which was not sustainable,” says Mr Nadkarni.

Purpose of profit
At Tata, business operations have an underlying sustainability strategy where the ‘purpose of profit’ is as important as the bottom line. In fact, the Tata Index is being used by the top 16 companies of the Tata group, which together account for 95 percent of group’s turnover and employee base.

The part played by the Tata Index has been recognised by several organisations, researchers and academics from around the globe. XBRL International, for instance, has acknowledged that the Tata Index is the first of its kind.

The factor that makes the Tata Index stand out is that it measures outcomes not in terms of operations — how many children, for example, have been enrolled in schools — but in the overall terms of human development or well-being. In essence, the index treats resources and infrastructure as the means to the end, which includes concepts such as accountability, transparency, participation, dialogue, leadership, volunteering, community building and decentralisation.

“Just referring to the number of wells dug up by a company as part of its community engagement programme does not mean much,” explains Mr Nadkarni. “But when a company empowers a community by providing access to water resources, it tells an important story. That is the purpose of profit.”

Through the index, TCCI also encourages Tata companies to “give a purchase order, not a charity cheque”. That’s the logic behind Tata Teleservices — to cite one example among many — launching its ‘Amba’ initiative, where back-office work is off-loaded to a nonprofit that cares for mentally retarded children. Similarly, Titan Industries has set up Myrada, a nonprofit for the physically challenged, which trains people and helps them to get jobs and earn livelihoods.

The Tata Index is a highly proactive and risk-mitigating tool, which enhances systemic opportunities for businesses to reach out to the underprivileged. It transforms a business entity into a medium for doing good. That may be just as important, in this day and age, as churning out profits.