Environmental, social, and governance considerations are crucial for sustainability in an era marked by environmental degradation
The interest in Environmental, Social, and Governance (ESG) considerations isn't merely a trend—it's a critical pivot towards sustainability in an era marked by environmental degradation and widening social gaps. At its core, ESG represents a comprehensive framework guiding businesses towards practices that not only ensure profitability but also address pressing global challenges.
As we advance in the post-pandemic landscape, collaboration and cooperation are more crucial than ever. For India, these priorities align with ambitious climate targets, a rapidly growing digital economy, and global trade aspirations. Amid climate change and environmental degradation, there is growing recognition that businesses play a vital role in promoting sustainable development. Last year, Business 20(B20) was one of the most prominent Engagement Groups in India’s presidency of G20. It has become an increasingly important forum for private sector leaders to deliberate on subjects such as the adoption of ESG standards. One of the B20 Action Councils has focused on encouraging the rapid and broad implementation of ESG principles among businesses of all sizes and economic contexts.
Their primary suggestions include creating universally applicable ESG standards and ensuring transparent, comprehensive, inclusive, and equitable disclosures across all regions ESG goals are typically a set of operational standards that require companies to adhere to better governance, ethical practices, environmentally friendly measures, and social responsibility. It emphasizes non-financial factors as a metric for guiding investment decisions in a world where only financial returns are no longer the sole goal for investors or employees. ESG enables businesses to have a long-term vision instead of a myopic vision.The horizon of ESG has evolved significantly over the years. It is more than simply checking a box on the compliance checklist. Accelerating a shift to cleaner energy carriers and other efficient technologies can improve global standards of life while also contributing to long-term decarbonization goals. For instance,
ESG can align with traditional medicine to forge an environmental path by promoting the use of natural, organic, and sustainable resources in Ayurveda, Yoga and Naturopathy, Unani, Siddha, and Homoeopathy (AYUSH) practices, thus reducing the environmental footprint. To promote greater adherence to ESG standards, businesses must be transparent about their practices and their impact on the environment and society. This can include initiatives such as reporting on greenhouse gas emissions, disclosing supply chain practices and engaging with stakeholders to address concerns about labour standards and human rights.The path to a universally embraced ESG framework is fraught with challenges.
Diverse and sometimes conflicting definitions and standards set by various entities have led to inefficiencies in reporting and general sluggishness in adopting responsible practices on a global scale. The solution lies in harmonizing ESG frameworks for disclosure, reporting, and rating. Such a unified approach would streamline efforts, making it easier for companies of all sizes to participate in the global movement towards sustainability. Companies that address ESG risks tend to experience fewer disruptions, gain more trust, and achieve consistent financial results, adhering to a triple-bottom-line strategy that combines financial returns with environmental and social norms.
Progressive ESG reporting standards, multi-stakeholder partnerships, and dialogue between businesses and civil society can address these challenges.Indian corporations are increasingly incorporating ESG considerations into their business decisions, with several asset management firms launching ESG funds. These ESG-indexed companies have outperformed non-ESG-indexed companies, as per data from the National Stock Exchange (NSE). Investors in India are using novel tools to fund social and environmental initiatives.
The Ghaziabad Municipal Corporation, which is also listed on the Bombay Stock Exchange, issued India's first green bond (BSE). The Corporation raised ?150 crores in capital to help fund the water treatment plant and tertiary sewage. According to a survey conducted by Singapore-based bank DBS and Bloomberg Media Studios, 92% of Indian SMEs said ESG measures are a high priority for their business, compared to 83% of SMEs across Asia.
The corporate world is aligning with climate science, with thousands of businesses adopting initiatives like the Science-Based Targets.
(The writer is member Invest India, the National Investment Promotion and Facilitation Agency under DPIIT, Ministry of Commerce and Industry; views are personal)
