The global Environmental, Social, and Governance (ESG) landscape has witnessed a seismic shift, since both the developed and emerging economies began to recognize the need to adopt sustainable practices. As India’s economy continues to grow, so does the importance of ESG in charting in building sustainable businesses and communities of the future.
ESG considerations for sustainable business practices and responsible investing: Recognizing the regulatory push and averting risks
Companies today are aware of the benefits that come with sustainable operations. Carbon Disclosure Project (CDP) recently reported that an ever-increasing number of companies are choosing to disclose data on climate change, deforestation, and water security. This is indicative of a surge in the league of climate advocates and leaders among businesses. Neglecting ESG exposes businesses to risks, including reputational damage, regulatory penalties, and financial losses. Through measures like the mandatory business responsibility and sustainability reporting (BRSR) for listed companies, regulatory bodies, like SEBI in India, are reinforcing the urgency for businesses to prioritize sustainable practices. BRSR, for example, mandates the top 1000 listed companies to report the data on the environment, society, and governance. Such frameworks empower investors, consumers, and other stakeholders to make informed decisions based on reliable ESG data.
However, things are not as straightforward as they seem. Companies need to navigate the complexities of integrating ESG frameworks, policies and regulations to their operations and reporting practices. They often face substantial challenges in identifying relevant ESG metrics and aligning them with their business goals. This requires collaboration among different business units, departments and pulling data from different systems. Technology enablement can be a huge contributor to how companies define, process, report on and achieve their sustainability goals.
Trends in the ESG space
The following trends reflect a growing emphasis on sustainable development and responsible business practices:
i. Sustainability impact measurement
Organizations today are looking to measure and quantify the environmental, social, and economic outcomes of their operations, products, and services. Sustainability impact measurement helps organizations measure their performance for long-term, sustainable value and impact. It also provides transparency and accountability to stakeholders. Companies stand to gain valuable insights into their performance, identify areas for improvement, and demonstrate their commitment to sustainable practices. They can further align their goals with global frameworks, such as the United Nations Sustainable Development Goals (SDGs) and Greenhouse Gas Protocol.
ii. Circular economy
The circular economy aims to minimize waste and maximize resource efficiency. Concerns over resource depletion and environmental degradation have led to increasing advocacy around the reuse, recycling, and regeneration of materials. The circular economy overcomes the drawbacks of the linear economy, and reimagines how we produce, consume, and dispose of goods. Governments and organizations worldwide are embracing it as a key strategy to achieve sustainability goals and create a more resilient economy.
iii. Climate adaptation
Climate adaptation has gained prominence due to the urgency around addressing climate change. This includes implementing measures such as building resilient infrastructure, promoting sustainable agriculture practices, and diversifying economies, thereby enhancing our collective preparedness to face the changing climate.
iv. Supply chain sustainability
Businesses today are recognizing the importance of ethical sourcing, responsible production, and minimizing environmental impact throughout their supply chains. Companies are evaluating the environmental and human impact of their supply chain logistics, such as traceability, supplier assessments, and sustainable procurement practices to promote social and environmental stewardship.
v. Third-party risk management
Embedding ESG considerations into the procurement life cycle and third-party risk management is crucial for organizations striving for sustainable and responsible practices. By integrating ESG criteria into supplier selection, due diligence, and contract negotiations, companies can mitigate environmental and social risks, enhance their reputation, and drive positive changes throughout the supply chain. This approach not only promotes ethical sourcing and sustainable operations but also reduces potential legal and financial risks associated with non-compliance.
vi. Impact on exports
The increasing focus on Environmental, Social, and Governance (ESG) factors and the implementation of supply chain due diligence legislations have significant implications for exports. Many countries such as EU, Germany, Switzerland are enacting laws that require companies to conduct thorough assessments of their supply chains, ensuring adherence to ESG standards. Failure to comply with these regulations can result in barriers to trade and reputational damage.
v. Carbon footprint disclosure
Transparent carbon footprint disclosure is gaining traction as organizations seek to gain control over their greenhouse gas emissions. Investors and consumers are supporting companies that prioritize this goal. This trend is driving the adoption of standardized reporting frameworks, carbon accounting tools, and initiatives to reduce emissions along the value chain.
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BCT Digital
vi. Green IT
A growing trend, green IT focuses on using energy-efficient hardware, optimizing data center efficiencies, and so on, to reduce carbon footprint. Green IT also encompasses electronic waste management, responsible recycling, and the development of sustainable technology solutions.
vii. Impact sourcing
This emerging trend of socially responsible outsourcing combines social and environmental objectives with business processes. It involves engaging marginalized or disadvantaged communities in outsourced opportunities. Impact sourcing enables companies to make a positive impact on these communities while benefiting from the talent and cost advantages they offer.
How is India reacting to the ESG perspective?
ESG in India is still evolving. Only a handful of India’s investors today are signatories of the United Nations Principles of Responsible Investing (UNPRI). However, as a country, we are actively demonstrating our commitment to sustainable development and responsible business practices. By integrating ESG principles into corporations, attracting ESG capital, engaging in global green finance initiatives, and adopting standardized ESG reporting frameworks, India is positioning itself as a responsible sustainability player.
For example, recognizing the importance of responsible business practices, India has mandated that certain companies allocate a percentage of their net profits towards CSR. Moreover, these companies are required to disclose their ESG profiles – a smart move aimed at attracting capital from global ESG investors.
Indian businesses are embracing their role as agents of change by actively contributing to the ESG ecosystem. For example, one of India’s largest power companies, aims to achieve a large share of its generation capacity from renewable sources in the short term. Such corporate contributions demonstrate the potential for businesses to drive positive social and environmental impact while ensuring long-term profitability.
In addition, Indian organizations are proactively embracing internationally recognized ESG reporting frameworks such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and Integrated Reporting (IR). Entrepreneurs are recognizing the economic value of embedding sustainability into their business models from the outset, with the majority considering it a key driver of growth.
Notably, India’s commitment to ESG goes beyond the corporate sector. The country’s banking sector, overseen by the Reserve Bank of India (RBI), has joined the Network for Greening the Financial System (NGFS). Through such measures, India’s financial sector is actively contributing to the advancement of green finance and playing a vital role in shaping policies to address climate-related risks.
All of these reflect India’s dedication to building a resilient and sustainable ecosystem.
The road ahead: Shaping the future for upcoming generations
As India stands at the forefront of the global ESG movement, the urgency to address environmental challenges, promote social inclusivity, and strengthen governance frameworks remains a pressing issue. By capitalizing on emerging trends, leveraging technology, and fostering collaboration among stakeholders, India can forge a path to sustainable growth.
Technological advancements play a pivotal role in helping organizations navigate the complexities of ESG compliance. For instance, advanced analytics, machine learning, and artificial intelligence enable accurate sustainability impact measurement, facilitating evidence-based decision-making. Technology also enables the implementation of circular economy models, aids in climate adaptation strategies, and ensures supply chain sustainability. Understandably, a vast majority of Indian companies believe that technology will play a crucial role in achieving their ESG goals.
