At a time when India is looking to reap rich dividends from the world’s growing divestment from China, indigenous companies will have to fully adhere to the ESG regulations globally
Responsibility towards the environment through adoption of sustainable practices is key to our lives today, and by extension, businesses.
Right from individuals and administrators to businesses and nations – the onus is on each one of us to make sure we are kinder towards our planet. Over time, Environmental, Social and Governance (ESG) norms have assumed significance as green practices have become a crucial part of businesses.
The concept of ESG has gained traction, with nations aligning themselves with the United Nations’ Sustainability Development Goals (SDGs), and looking to meet the net-zero targets. ESG is a framework to assess the practices and performance of organisations around sustainability and ethical issues.
Governments across the world have laid down environmentally-friendly policies, especially for businesses. An organisation’s performance, therefore, is no longer measured merely on traditional economic metrics but also by the impact it causes on the environment and its commitment to social issues and corporate governance.
The significance of ESG norms in the modern world can be gauged by the fact that the US Securities and Exchange Commission (SEC) has mandated companies to finalise its climate risk disclosure rules, while the European Union has set benchmarks and mandated disclosures by companies.
In India, the Securities and Exchange Board of India (SEBI) announced that its Business Responsibility and Sustainability Report (BRSR) will apply to the top 1,000 listed entities (by market capitalisation, while the RBI has advised banks to include standards for measuring ESG effects in borrowers' credit evaluation. The Institute of Chartered Accountants of India (ICAI) has also developed standards for environmental sustainability and social auditing procedures.
Particularly, at a time when India is looking to reap rich dividends from the world’s growing divestment from China, indigenous companies will have to fully adhere to the ESG regulations in the US and the European Union to stay relevant regionally and also in the global forum.
Now, adherence to ESG norms has various benefits that companies can tap on - one of them being the holistic growth of businesses.
According to a survey by Morgan Stanley, 85 per cent of investors want to align their strategies with their sustainability values. A rising number of institutional investors are shunning or divesting from poor ESG performers.
For example, if a company decides to cut back on its product packaging, it can save millions of trees and reduce the carbon footprint of a company by a huge margin. Additionally, it can also give a fillip to the bottomline.
Following ESG can also significantly save costs by assisting in the fight against rising operating costs. According to a McKinsey analysis, this may have a 60 per cent impact on operating earnings. ESG strategisation could be expensive initially, but also pays off handsomely in the long term.
A case in point is the apparel industry. Though the sector has a major role to play in helping the country achieve its net-zero targets, it has its task cut out. However, in recent years, apparel manufacturers have adopted practices such as minimal discharge of harmful chemicals, water waste management, using recycled and ethically-sourced raw material.
Another key factor that businesses need to consider is that consumers are growing increasingly cautious of what they use.
A survey by Unilever showed that one third of consumers choose to buy from brands they believe are doing social or environmental good, while a McKinsey research has shown that about 70 per cent customers say they are willing to pay to “go green”.
Furthermore, 64 per cent of consumers choose, switch to, avoid, or boycott a company depending on its position on societal concerns, according to a survey by Edelman.
According to another study, Millennials and Gen Zers will make up 72 per cent of the global workforce by 2029, and they are more concerned about ESG issues than previous generations were.
As last words, complying with ESG norms is crucial for businesses and organisations in today's world. As we move towards a more conscious and sustainable future, companies that prioritise ESG considerations are likely to emerge as leaders in their industries and contribute positively to society and the planet.
(N Chandran is Chairman of Eastman Exports.)