Making sustainability a priority in all aspects of business
The world has been witnessing catastrophic effects of climate change off late. Very recently, India too felt it when heat waves made the Nation, especially New Delhi, swelter at over 49 degrees. With unseasonal rains, floods and rising sea levels, topics of Climate Change, Net Zero and ESG are in discussions across the globe. The signs from Mother Nature are clear and the time is now to move from climate discussions to climate action!
India ranks third as far as Co2 emissions are concerned, accounting for 2.46 billion metric tonnes of carbon or 6.8% of the total global emissions. However, India’s per capita carbon emissions are still low at 1.84 tonnes compared to 16.21 tonnes of the United States. Needless to say, the India is putting in concerted efforts to combat climate change, and committed to be ‘Net Zero’ by 2070 at the COP26 Climate Change Conference, which took place in Glasgow in 2021. India Inc too has joined the efforts by taking the issue to their board rooms.
With firm objectives and intentions, the Indian government has set a target of 500 GW of renewable energy by 2030 and 50 per cent of share of energy from non-fossil fuels. As per Mr R K Singh, Power and New & Renewable Energy Minister, we are on the track with these targets and are poised to achieve it.
According to a McKinsey Global Survey, 83% of C-suite executives and investment professionals believe that ESG (Environment, Social Governance) programs will generate more shareholder value in five years’ time than at present. In Accenture’s research on responsible leadership, companies with high ratings for ESG performance enjoyed average operating margins 3.7 times higher than those of lower ESG performers. Shareholders also received higher annual total returns to shareholders, outpacing poorer ESG performers by 2.6 times.
ESG, which has been ruling the board room discussions, must be worked upon in word and spirit. In my opinion, even though the ‘G’ comes last, in “ESG”, everything starts with Governance. ESG should be made a part of the balance sheet of companies, with social metrics linked to them, and a separation must be done between ownership and management to improve governance. The Boards need to play a crucial role in the scheme of things. They should necessarily utilise the SCORE framework to link purpose to strategy, establish and integrate ESG-related KPIs into the compensation structure, ensure appropriate frameworks and have reporting mechanisms that support sustainable business in the longer term. The role of the regulators, CEOs and top management in not just setting but also achieving the ESG agenda is very crucial. The management should consider having an ESG audit, just like a financial audit. They have to be the custodian for Climate Action and see sustainability through with various checks and balances.
The decision makers must ensure that the business strategy of the company and the sustainability efforts are aligned and reaches the grass root levels. We have seen on number of occasion that the top management’s vision does not percolate to the shop floor (in case of manufacturing units) and we witness divergence, which makes the sustainability efforts fragile, lacking real commitment and prioritisation.
A transition needs to happen across businesses in a coordinated move to ESG by India Inc. We are witnessing such a transition at Essar, with the company’s portfolio businesses having a comprehensive, professional and independent governance framework. With investment themes around decarbonisation, decentralisation and digitisation, Essar aims to help the world’s effort towards achieving a net carbon zero dream. It is transitioning its existing business to greener operations and alternatives, and is investing in businesses that would transform the entire sector to clean and sustainable energy. Among many initiatives in hydrogen, bioenergy, renewables, clean-fuel supply chains and battery storage, Essar’s investments in Vertex Hydrogen is a highlight of such intentions. The company is poised to deliver the UK’s first low carbon hydrogen production plant and will lead the country’s hydrogen economy. Vertex sits at the heart of HyNet North West, the UK’s leading industrial decarbonisation cluster.
Concerted efforts are needed from all stakeholders for creating sustainable businesses, and steering organisations to achieve the UN Sustainability Development Goals (UNSDGs).
Authored by – Sunil Jain, Operating Partner – Energy Transition, Essar Capital