The state of corporate Yahapalanaya

By Tiara Anthonisz and Ruchi Gunewardene

Sweeping changes

December 2015 brought the world’s first coordinated effort to reducing greenhouse gas emissions, when over 190 countries finally agreed on a pact at COP21 in Paris. While the inability to come to a global agreement previously was largely due to big business and their resistance to change, the Paris Agreement is a revolutionary change from past climate discussions.

Sri Lanka achieved its own revolution in 2015 with the arrival of the Yahapalanaya movement, which arose from a loud call for change that successfully caused a dramatic shift in the local political system. 

In these changing times, businesses have a significant role to play if they are to adapt to these local and global changes. Our fellow Sri Lankans have realised the power of their united collective voice, which has resulted not only in the changed political climate, but also in frequent pressure being put on companies to operate according to now accepted norms of corporate behaviour, such as staying clear of money laundering which is an example of a current hot topic.

In light of these changes, it’s important to understand to what extent big corporates have changed their own behaviour. We must understand whether companies have put into place necessary functions for ensuring responsible business practices and for making themselves accountable for their actions to our nation’s citizens. 

The state of corporate Yahapalanaya 

The 2016 STING Corporate Accountability Index is a biennial index that is published in the LMD. It is compiled by STING Consultants through an extensive research study undertaken amongst Sri Lanka’s biggest companies. 

This year we find that at an overall level, Sri Lanka PLC has taken some steps forward since the previous index, with the average score achieved increasing to 51.02 from 47.18. 

A comparison of the 2014 and 2016 performance of companies featured on the index in both years (i.e., 56 companies) finds that nine additional companies now mention having sustainability committees or teams in place, six additional companies mention having environmental policies, human rights policies, and codes of conduct in place, three now mention environmental certifications, while three mention having implemented whistle-blowing policies, and four additional banks mention incorporating social and/or environmental management systems into their credit policies.

An obvious parallel to draw between the socio-political climate of Sri Lanka and the stance of big business is on the issue of bribery and corruption, which has long been considered a way of life in the political and business environments of the country. A strong push towards eradicating this is observed within the new political arena, though long term effectiveness of this remains to be seen. 

This change is reflected amongst the business community, at least on paper, as 55 of the 62 companies featured, now mention having codes of conduct and ethics, or anti-bribery and corruption policies in place. Of the 55 however, only 25 mention providing training to staff on these policies, and so there is room for improvement in making employees aware of the policies and principles that companies want to uphold through their activities.

42 companies now also claim to have implemented whistle-blowing policies or procedures whereby employees can illuminate incidents of bribery, corruption, fraud, or other corporate malpractices, and bring these to the attention of senior management or Boards. 

Access to finance

The change in sentiments and wide acceptance of standards amongst society brings to question whether the infrastructure upon which businesses operate has also evolved accordingly. A key aspect of this is access to finance which enables businesses to grow. 

Of the 12 Banks featured, we find that 8 have incorporated social and environmental management systems into their credit policies whereby borrowers are screened prior to granting finance. Of these eight banks, four mention assessing borrowers for environmental aspects only, while four mention social and environmental aspects being used to screen those seeking financing. 

Access to finance is therefore largely already determined by a company’s sustainability risk management and performance, and as more banks incorporate these criteria into their procedures for approving credit, companies will find it hard to ignore their environmental and social responsibilities. 

Alignment with the International Agenda

With global country targets established through the Paris Agreement, local companies also have an important responsibility to help achieve these. The Index found that 44 companies listed have introduced environmental policies, while 32 have achieved some form of environmental certifications.  However, only 17 mention training their employees on how to handle environmental aspects or how to work according to their environmental policies. This is a weakness as policies alone are insufficient for ensuring Sri Lanka achieves its emission reduction targets, and it’s essential that employees are informed and motivated to help achieve them through their daily activities. 

On the bright side, 21 companies are already calculating their carbon footprints and taking steps to reduce these. Additionally, at least 20 companies have invested into renewable energy, either for their own operations, through providing finance, or as long term investments. There’s still a long way to go though, as 23 companies don’t disclose their energy consumption, and it’s unclear whether they are taking any steps to reduce emissions. It must be remembered that even the service sector contributes towards the emission of carbon dioxide and other climate-altering gases. 

Beware of greenwash

While we see a positive trend in Sri Lankan companies’ acceptance of their social and environmental responsibilities, care must be taken that this is done for the right reasons and not just to give their stakeholders the impression of great social and environmental virtue. 

This year, we see that annual reports that claim to be ‘integrated’ have become main-stream. Of the 62 companies listed, 30 have titled their annual reports ‘integrated reports’, including several companies who scored less than 50%. 

This proves that though information is presented in an integrated manner, these companies do not actually have in place the necessary ingredients for integrating sustainability into their core strategies or management agendas.

Though increased communication is a good thing, care must be taken not to just pay lip service to sustainability – changes must actually be made within corporates in terms of enhancing their sustainability performance and linking this with their overall business strategies – if not, this is merely an elaborate form of greenwash. It’s far more important that companies actually make changes to their operations in line with the new world order and show their stakeholders what progress they have made through actionable goals and results. 

It would be much more beneficial for the progress of our nation, if companies were to be transparent and admit to facing social or environmental issues while explaining exactly what they are doing to overcome these, than to pretend they are perfect corporate citizens. 

Conclusion

Given the significant developments over the past year within the local socio-economic climate as well as milestones achieved in the global sustainability agenda, companies now have to take stock of where they are along the sustainability journey, and identify how to adapt to new local and global expectations. 

The change in attitudes and outlook that we see amongst our fellow Sri Lankans proves that businesses, just like the State, can no longer idle while stakeholders expect and demand higher and higher standards. 

Mahatma Gandhi once said ‘Be the change that you wish to see in the world’. Sri Lankans have taken this ideology to heart and corporates too must align themselves accordingly if they hope to remain in the good graces of their most important stakeholder – the ordinary citizen.

A complete analysis of the 2016 Corporate Accountability Index can be viewed at www.stingconsultants.com