Corporate Sustainability in India : Analysis of Business Performance in the Context of Climate Change Risks and Opportunities

Abstract

New standards, regulations and expectations of transparency from various stakeholders are forcing corporate sustainability strategy to move into the mainstream demanding the businesses to become proactive and de-risk themselves from charges of negligence. In the present research, we have made an attempt to define the concept of corporate sustainability and study how the businesses take into account the economic, environmental and social impacts when corporate sustainability transits from zone of voluntarism, to compliance and then to the zone of beyond compliance. Changes in the current institutional environment and scanty literature in the Indian context motivated us to study the characteristics of Indian companies with respect to corporate sustainability performance (CSP) and reporting. In the first phase, scoping study was conducted using a content analysis approach to understand the underlying concepts, stakeholder engagement and CSP indicator disclosure in India. Previous studies have highlighted the relationship between CSP and corporate financial performance (CFP), however, given the inconsistencies in empirical studies, we reviewed this relationship using both empirical and meta-analysis literature spanning from 1996 to 2016. It is found that control variables, such as industry, size and risk, have been playing an important role in influencing these relationships. Incongruences of methodology, industries, control variables, stakeholder groups, geo-political and regulatory aspects and measures of both CSP and CFP are found to be responsible for variations in the results. In the next phase, we explored the implications of regulatory interventions and responses to impending climate change risks and opportunities. The study focused on the largest 500 corporations in India, because of their wide visibility and economic impact, during the period of 2011 to 2016. The hypotheses were developed to characterize patterns of corporate climate change activities and validated using logistic regression model and random forest algorithm. The models were compared based on the accuracy of the results. The result suggests that higher state involvement through regulatory legislations could deter corporate climate change response. The study concludes that the optimum governance system would be the one of joint governance where the government, through regulatory intervention, and proactive firms (i.e., those who are anticipating climate change opportunities) work together to improve overall performance and progressively achieve ‘sustainable development’.