– By Jayaprakash Mallikarjuna
Businesses today understand the risks and opportunities presented by climate change as well as the importance of being future-ready. The rise of ESG (Environmental, Social, and Governance) investing in the Indian market predicts a significant move toward the integration of more ethical and sustainable investing methods. This increasing awareness of ESG investing symbolizes a substantial change that will bring prospective benefits for the Indian economy, society, and the environment.
Why is ESG important in India?
ESG can be described as a framework that enables stakeholders, including the investment community, suppliers, employees, and customers, to understand how an organization manages its risks and opportunities related to the environmental, social, and governance criteria.
The term was first used in a 2004 report titled “Who Cares Wins,” a collaborative initiative of financial institutions at the invitation of the UN. In less than 20 years since then, the ESG wave has grown into a global phenomenon.
ESG involves pursuing responsible and ethical business practices with attention to social, environmental, and economic development. This ESG-enabled lens allows an organization to manage the risks and opportunities created by changes in environmental, economic, and social systems. ESG reporting is further employed by stakeholders to assess sustainability-related risks as well as relevant opportunities.
Indian businesses are rapidly incorporating ESG aspects into their holistic business strategy. In India, for sustainability, there have been two watershed moments –
- Corporate Social Responsibility (CSR) reporting and spending, an initiative made mandatory under the Companies Act, 2013.
- Securities and Exchange Board of India (SEBI) guidelines for Business Responsibility and Sustainability Reporting (BRSR), a standard framework used as a single source to disclose sustainability-related information.
CSR, introduced in 2014, made it mandatory for enterprises to spend a minimum of 2% of their net profits on CSR initiatives as well as disclose their ESG initiatives to attract capital from global ESG investors. India has also issued a defined CSR mandate for organizations with a net worth of Rs. 5 billion, or turnover of more than Rs.10 billion, or Rs.50 million net profit.
BRSR, introduced by SEBI as a replacement and enhancement over the Business Responsibility Report (BRR), is compulsory for the top 1000 listed companies (by market capitalization) from FY 2022–23. It requires organizations to report on ESG parameters in line with the National Guidelines for Responsible Business Conduct (NGRBC). As per SEBI, organizations that are already disclosing ESG data in alignment with global standards like GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), or TCFD (Task Force on Climate-related Financial Disclosures) can cross-refer to disclosures made under these standards.
Businesses are acknowledging their responsibilities to monetary returns while etching a positive social and environmental impact. This boost in ESG adoption will further drive corporate growth, improve the companies’ public image, and help them raise capital at lower costs. While ESG may still be in its infancy in India, investors are becoming more aware of the measures being taken to safeguard the environment as well as the implications of covering the ESG criteria. Corporate enterprises must integrate ESG principles to protect the environment, the interests of stakeholders, and business sustainability as a whole.
The current scenario in India
Indian businesses are beginning to incorporate sustainability into their operational framework. Several businesses are designing specified goals to reduce their environmental impact and enhance their social and governance standards by integrating ESG concerns into their decision-making processes. While the Indian business landscape is advancing in the adoption of ESG, there is still much work to be done, as there are multiple challenges to overcome, such as enhancing business resilience, risk management, and stakeholder satisfaction.
With India’s ESG reporting scenario evolving rapidly, the government has started introducing several programs as well as policies to support sustainability efforts and business practices, such as the National Solar Mission and the National Electric Mobility Mission Plan to support renewable energy and lower carbon emissions initiatives. It has also mandated concerted efforts from businesses, regulators, as well as stakeholders to ensure that sustainability measures are integrated into decision-making processes and strategies. This involves building expertise, setting up adequate reporting systems, ensuring transparency, and fostering accountability and collaboration.
The Indian manufacturing and service sector is also emerging as a major part of the value chain of many global corporates, thereby playing a significant role in fulfilling sustainability objectives for businesses. With India committing to Net-Zero emissions by 2070 at COP26, Indian businesses are preparing to play their part in this national objective by embracing their own carbon reduction initiatives. Companies will also play a vital role in the creation of innovative sustainability technologies, platforms, and processes, which will further assist in monitoring impact, making resource consumption more efficient, reducing pollution, etc.
The emergence of smarter businesses
The potential benefits of ESG adoption in India outweigh the challenges. With a commitment to sustainability from stakeholders, Indian enterprises can drive significant strides to build a more sustainable and responsible business environment. This collaborative effort will foster a sense of belongingness and the pursuit of enabling Indian businesses to thrive while promoting long-term economic growth and stability. Instead of being sensitive about sharing ESG reporting data required by key stakeholders, the current scenario demands a more transparent approach. Sustainable finance taxonomies across the globe are also emphasizing adopting transparency in financial decision-making.
Some of the potential solutions to foster ESG initiatives are as follows –
- Building awareness about the significance of ESG principles for sustainable growth
- Up-skilling the necessary knowledge and capabilities into business decision-making
- Fostering a culture of sustainability across different sectors and organizations to navigate the complex ESG landscape
- Adopting transparent and robust reporting practices to showcase the impact of ESG initiatives
By embracing ESG policies and principles, Indian businesses can position themselves to be accountable corporate citizens and leaders in the evolving sustainable business landscape.
Toward a sustainable future
Today, ESG is more than just a buzzword. It involves driving efforts to make a difference – for businesses as well as the world. India is also set to witness an ESG transformation as sustainability, social responsibility, and corporate governance are emerging as increasingly important components for businesses across all sectors in the country.
Businesses are embracing sustainability initiatives and establishing goals to lower their environmental impact and enhance their social and governance standards. It is vital for organizations to foster sustained outcomes that help in driving value and fuel growth while strengthening the environment and society. The evidence-based portrayal of ESG-driven operations enables businesses to establish the company’s authenticity, strengthen their relationships with stakeholders, and enhance public perception as well as risk communication.
Designing a 360-degree ESG architecture has also become paramount for businesses for effective risk management, accountability, and adherence to economic, social, and regulatory perspectives. Indian businesses are now looking ahead to integrate transparency and transformation into their decision-making and explore new avenues to drive collaboration across diverse production modalities.
(Jayaprakash Mallikarjuna is the Head of ESG Services & Data Modernization at SG Analytics. Views expressed are the author’s own.)