Business Ethics Governance and Risk

June 2023
Answer 1:
The ethical principles that underpin risk management trust, responsibility and accountability.
This means that those responsible for managing risk within an organization must take
responsibility for their actions and be accountable for the consequences of their decisions.

Listed companies' boards manage enterprise risk by implementing a risk management framework
that identifies, assesses, and manages risks that could affect the company's ability to achieve its
strategic objectives. The board's responsibility is to oversee and monitor the implementation of
the risk management framework to ensure that it is effective in identifying and managing risks.

The board's role in managing enterprise risk includes setting risk management policies and
procedures, approving the risk management framework and its periodic reviews, monitoring the
effectiveness of the risk management process, and ensuring that the company's risk profile is
consistent with its risk appetite and strategic objectives. The board should also ensure that
appropriate risk management resources are allocated, and that the company's risk management
practices are consistent with relevant legal and regulatory requirements.

Risk Management at Reliance Industries Limited (RIL)

To better understand how a listed company manages its risks, we are taking example of Reliance
Industries Limited.

Financial Risk: One key financial risk that RIL is exposed to is the Interest Rate risk. Reliance
needs to borrow funds from both domestic and international markets to meet its funding
requirements. Any increase in interest rates can lead to financial loss to the company.

To manage the Interest Rate risk, the company actively manages the derivatives to convert
floating rate liabilities into fixed rate and vice-versa. During FY 2021-22, RIL issued FX bonds

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worth $4 billion at a fixed coupon rate to lock in the low rate of interest prevalent at the time of
issuance.

Non-Financial Risk: Since most of the crude oil is supplied to RIL by ships and RIL exports
refined products through sea, road and pipeline, it is exposed to Safety and Environmental risks
during transportation. Any risk incident can lead to spread of hazardous chemicals in the
environment, fires, explosions and other safety incidents.

To manage this risk, RIL maintains a strong ship vetting, incident monitoring and emergency
response system. Ships are screened through a third-party ship vetting system before being
inducted in the fleet. Periodic vendor audits of time charter and other service providers are
conducted in accordance with the Marine Assurance Framework.

Answer 2:
For the purpose of answering this question, we have taken Mahindra and Mahindra Ltd. (M&M)
as the subject. M&M has committed to reduce total Scope 1 and Scope 2 greenhouse gas
emissions by 47% by 2033 considering 2018 as base year.

In the year 2021-22 Sustainability Report, M&M has stressed upon accelerating energy transition
from fossil-fuel based energy to renewable energy for achieving the carbon neutrality targets.
M&M has adopted 60MW solar power plan located in Parbhani of Marathwada region.

With this initiative, M&M is targeting reduction of 79,000 tonnes of carbon emissions every
year. This is equivalent to planting 3.7 million trees per year or providing annual power supply
to 20,650 households approximately.

We agree that switching to renewable sources of energy contributes significantly to reduction in

carbon emissions. This initiative by M&M has the potential to contribute towards its carbon
neutrality targets.

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In FY 2012-22, M&M mitigated 10,432 tonnes of carbon emissions. Of this, 5,754 tonnes
mitigation came from the projects or initiatives taken in the current financial year. The company
also mitigated 4,678 tonnes of emissions through the projects initiated in the previous financial
year.

Overall, the company is moving well on its target to carbon neutrality by 2033. The different
initiatives taken during the years leading to 2033 will provide growing benefits with every
passing year.

Answer 3a:
Professionals such as doctors, accountants, and lawyers are often held to a higher standard of
conduct and ethical behaviour because they have specialized knowledge and skills that directly
impact people's lives and well-being. As such, they have a responsibility to act in the best
interests of their clients or patients.

Code of conduct is required for such professions because of the following reasons:

1. Trust: Presence of code of ethics and adherence to the code in true spirit helps build trust
between the professionals and the individual/organizations they work with. It also helps builds
trust in the society that these professionals will act in the best interest of their clients. For
example, accountants are required to attest and certify the financial results of companies.
Adherence to code of conduct will ensure that the accountants do not certify any information
which is false or misleading. This builds trust in the shareholders that the information they are
receiving about the company is true.

2. Responsibility: Code of conduct acts as a guide for professionals regarding the responsibility
they have towards the society and their clients. Without a code of conduct, professionals may,
intentionally or by mistake, may get involved in practices or commit an act which may prove
harmful for their clients.

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Answer 3b:
For the purpose of answering the question, Concentrix Corporation is being used as an example
for explaining the ethical principle of Fairness.

Being fair at workplace means treating everyone equally and avoiding any kind of preferential
treatment for an individual or group. Fairness can encompass the business processes such as
hiring, performance reviews, promotions etc.

At Concentrix, the hiring team is trained on inclusive sourcing which drives hiring people
without any discrimination based on sex, colour, race, religion etc. Concentrix has also made
special efforts towards hiring people from LGBTQ community and people with disabilities.

Diversity, Equity and Inclusion (DEI) is promoted throughout the organization through several
Staff Resource Groups, webinars and other initiatives.

Performance reviews are data-driven and fully transparent. Similarly, for promotions, no
discrimination is made on the basis of gender, sexual orientation, disabilities, race, colour or
religion. The Board and Executive Leadership at Concentrix is an example of DEI in itself.