National Voluntary Guidelines (NVGs)
National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) is a unique framework made by the Government of India that offers a principle based approach for companies to create a positive impact on people and planet while staying competitive and profitable.
India has one of the most progressive business responsibility frameworks in the form of NVGs. As the name reveals, NVGs are voluntary and not enforceable by law.
Why was there a need for National Voluntary Guidelines?
One cannot understand the need for NVGs unless one understands business responsibility in an Indian context.
After the economic reforms of 1991, the Indian economy witnessed rapid liberalisation and privatization. Globalisation brought higher foreign investment in the Indian private sector, which eventually made India one of the fastest growing economies.
Major changes in industry and economy began to impact the society. Over the years, inequality has grown deeper in India while unemployment has barely reduced. There have been many occasions when companies have run into conflicts with local communities over land & resources.
Industrial and economic growth has contributed to increasing levels of pollution and rampant deforestation. In order to make the country’s economic growth led by businesses more responsible and inclusive, a framework such as NVGs became quite critical.
To add to this, there has been growing pressure on private companies from stakeholders, investors, media and civil society – asking them to step up their game and come clean.
CSR and National Voluntary Guidelines
Corporate philanthropy and Corporate Social Responsibility (CSR) are widely understood terms in the world of business. NVGs are relatively new and more aligned with the concept of responsible business conduct.
The most interesting part about National Voluntary Guidelines is that they evolved out of the CSR (Corporate Social Responsibility) Voluntary Guidelines 2009 made by the Government of India.
The CSR guidelines were meant to encourage Indian companies to adopt responsible business practices. The government decided to review these guidelines in 2009 and that’s how the NVGs were born. However, this should not be confused with the prevalent 2% CSR law.
Who made the National Voluntary Guidelines?
To review the CSR Guidelines, a Guidelines Drafting Committee (GDC) was set up by Ministry of Corporate Affairs (MCA) in 2009. This committee had experts from financial institutions, regulatory bodies, government, industry associations, civil society etc.
The GDC carried out an extensive and intensive consultation process with various stakeholders across Indian cities and regions. The final draft of the guidelines was submitted to the MCA in 2010. They were renamed as National Voluntary Guidelines and released in 2011.
What are the principles outlined in NVGs?
The National Voluntary Guidelines are a set of 9 principles that act as a guide for companies to follow a ‘responsible business conduct’ in the Indian context. They are:
Principle 1: Businesses should conduct and govern themselves with ethics, transparency and accountability
Principle 2: Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle
Principle 3: Businesses should promote the wellbeing of all employees
Principle 4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised
Principle 5: Businesses should respect and promote human rights
Principle 6: Businesses should respect, protect, and make efforts to restore the environment
Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner
Principle 8: Businesses should support inclusive growth and equitable development
Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner
Why are the National Voluntary Guidelines voluntary?
Viraf Mehta, who was a part of Guidelines Drafting Committee explained why NVGs were made voluntary.
He said, “ It was the Drafting Committee’s understanding that we were drafting National Guidelines for what we considered to be the responsibility areas of business, and not limited to CSR (community development), and its articulation in the erstwhile CSR Guidelines (now law). It was the Ministry’s view that these Guidelines be “Voluntary” (in that they cover issues that are not yet legally mandated, or go beyond the legal provisions of existing applicable ones).”
But there is a contradiction. In 2012, the securities market regulator in India – Securities and Exchange Board of India (SEBI), made Business Responsibility Reports (BRRs) mandatory. The BRR framework is based on the NVGs.
Who is responsible for creating awareness about NVGs?
Indian Institute of Corporate Affairs (IICA) is the nodal agency for NVGs. IICA has promoted NVGs so far. However, the awareness has grown slowly in the last few years. SEBI, media and civil society have a key role in promoting knowledge about the guidelines.
How are National Voluntary Guidelines used by IRBI?
The India Responsible Business Index (IRBI) is a tool to encourage companies to be more responsible and create good policies. Similarly, the sole purpose of the NVGs is to guide companies to do business sustainably. In other words, the guidelines and index have the same intention.
IRBF brings back attention to the NVGs and initiates a conversation on them.
More specifically, the index uses 5 of the 9 principles laid out by NVGs as parameters to analyse disclosures and public data shared by the top 100 companies in India. It ranks the companies according to their performance in the area of business responsibility. This is how the index and the guidelines complement each other and help business & society.
When asked about how the NVGs and IRBI work together, Viraf Mehta said, “ Excellent civil society initiatives such as the IRBI and the BR analysis by CRW, are to be encouraged and congratulated, and we feel that with NVG 2 we have a good opportunity to more comprehensively align their objectives.”
At IRBF, we believe if the National Voluntary Guidelines are understood and used effectively by companies, they can transform the whole landscape of business responsibility in India.
Did this article help you in understanding NVGs? If you still have any questions related to NVGs, please leave a comment below. If you’re still confused about the index, here’s all you need to know about India Responsible Business Index.