ESG: A Crucial Step Towards Sustainability
October 2, 2023
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Home Bharat

ESG: A Crucial Step Towards Sustainability

The role of an ESG is to ensure accountability and the implementation of systems and processes to manage a company's impact, such as its carbon footprint

by Arvind Mishra
Jun 11, 2023, 08:30 pm IST
in Bharat, Opinion
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Environmental, Social, and Governance (ESG) factors are increasingly becoming a key consideration for organisations in India. ESG parameters are used to measure the sustainability and ethical impact of an investment in a company or organisation. By prioritising ESG disclosure, organisations can not only improve their social and environmental impact but also enhance their long-term financial performance.

It is being considered a foundation to address the ongoing climate crisis, and governments worldwide are enacting laws and frameworks related to ESG. In India, it was mandatory by SEBI in the form of Business Responsibility and Sustainability Reporting (BRSR) for the top one thousand listed companies in the market last year.

The “E” in ESG, stands for Environment. It examines how much energy a company consumes, the ratio of renewable to fossil fuel consumption, and the measures taken for waste management. It includes all the information taken by the company to strengthen the Environment at every step.

The second parameter of ESG is “S” for Social. It assesses the presence of women, persons with disabilities, and other diverse groups in a company’s workforce. It also examines the prioritisation given to linguistic and geographic diversity, labour welfare, and community development within human resources. It aims to understand what the company is doing for social empowerment.

The third criterion of ESG is based on Governance. Under this, the company provides information about the corporate governance structure, board diversity, remunerations details and about steps taken for data privacy, third-party verification, and measures to prevent corruption.

ESG reporting brings forth the aspects of a company’s business activities related to the Environment, social issues, and Governance.ESG reporting is not just about compliance but also a way for companies to demonstrate their commitment to sustainability. It is not just for institutional investors or high-net-worth individuals. Retail investors also use ESG investing as a tool for their investment decisions. Many mutual funds and exchange-traded funds (ETFs) now offer ESG options, making it easier for retail investors to incorporate ESG factors into their investment portfolios.

Today, many companies are attracting new investments through ESG funds and announcements, allowing investors to make informed and effective decisions about their investments. This promotes a circular economy and reduces the risks associated with investments, ultimately benefiting the strength of the brand. India has set a target to become net carbon neutral by 2070, which is only possible through a robust ESG framework. It is important to ensure that ESG-based projects are not limited to a single sector, as currently, 80 per cent of green finance is spent only on renewable energy. Identifying the potential risks of any project makes it easier for companies, investors, and local communities to make informed decisions.

However, incorporating ESG disclosure into Indian companies is not without its challenges. One of the biggest challenges is the issue of greenwashing, where companies make false or exaggerated claims about their environmental or social impact. This can make it difficult for investors to identify truly sustainable and responsible companies.

Another challenge is the lack of a proper framework for ESG incorporation in Indian companies. While the SEBI mandates of Business Responsibility and Sustainability Reporting have helped to promote ESG disclosure, there is still a need for a more comprehensive framework that can guide companies in their ESG efforts.

As the scope of mandatory ESG reporting expands, it is natural for the demand for ESG rating providers (ERPs) to increase. Such organisations will need to be brought within the purview of regulations. There is a lack of awareness among Indian companies about the importance of ESG factors. Many companies still view ESG as a peripheral issue rather than a core part of their business strategy. This highlights the need for greater education and awareness-building efforts to promote the importance of ESG factors among Indian companies. Including ESG initiatives in the environmental curriculum can make it a practical part of training programs. By providing green incentives, companies can be encouraged to perform well and achieve better ratings.

ESG reporting is a powerful tool for companies to build trust with their stakeholders, including investors, employees, and customers. It is a way for companies to demonstrate their commitment to sustainability and responsible business practices. It is time for companies to embrace ESG reporting and funds as a legal obligation and a responsibility towards a sustainable future.

As the world faces the ongoing climate crisis, ESG presents a practical approach that can address the issue. ESG reporting offers long-term benefits to companies, including better ratings and cost-effective, environmentally friendly products and services. ESG reporting is a powerful tool for companies to build trust with their stakeholders, and it is time for companies to embrace ESG reporting and funds not only as a legal obligation but also as a commitment towards a sustainable future.

As more companies and investors in India recognise the importance of ESG factors, we expect to see a shift towards more sustainable and responsible business practices and a brighter future for India’s economy and Environment. However, this will require a concerted effort from all stakeholders, including companies, investors, regulators, and civil society organisations, to overcome the challenges and promote the benefits of ESG incorporation.

(Author is a Delhi-based Journalist)

Topics: The role of an ESGstands for Environmentresponsibility towards a sustainable futureResponsibility and SustainabilityEnvironmentalSocial and GovernanceBusiness Responsibility and Sustainability Reporting (BRSR)
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