Environmental, Social, and Governance (ESG) have become shorthand for investment methodologies that embrace ESG or sustainability factors as a means of helping to identify companies with the superior business model.
ESG criteria are standards for business operations that typically, socially conscious investors deploy to measure the viability of investment opportunities. Environmental criteria consider how the business performs as a protector and preserver of nature. Social criteria examine how it manages relationships with its stakeholders – employees, suppliers, customers, and the communities it operates. Governance involves a company's leadership, executive pay, audits, internal controls, and shareholders' rights. ESG is far from a business buzzword – it is a gateway for new frontiers of change.
While ESG is conceptually evolving, and all stakeholders can leverage it to unlock greater long-term value, business resilience can be effectively achieved with a robust ESG framework in a post-pandemic world.
Before, sustainability was a soft and compliance issue, but now it has become a strategic priority for most companies. In many ways, ESG has become the foundation of future business strategies – the crux revolves around green products, processes, and supply chains, each becoming a source of value creation. Today, most customers look at the ESG value proposition of companies that buy products and services. In the B2B segment, ESG is becoming a non-negotiable part of the procurement process. The focus is not only on energy and the environment but how corporate citizens work in communities around them.
ESG as a concept is not alien. As we continue to exploit natural resources and increasingly add to the carbon footprint, which in turn has a cascading effect on every facet of our lives, the need to evolve ESG standards to address the ever-evolving challenges in these spaces assumes urgency.
At a macro level, in the Indian context, the biggest challenge in progress towards ESG is that 74% of fossil fuel energy is derived from coal.
India can only achieve its target of Net Zero with a reduction in its dependence on coal. Reducing the cost of Hydrogen can play a critical role in energy sustainability efforts which would need the right collaborations and technological interventions. If done right, ESG can better preserve long-term business value by holistically protecting profits, people, and the ecosystem.
‘Law' has been a front-runner in voicing the need to address ESG aspects. For instance, provisions of The Environment (Protection) Act, 1986, The Energy Conservation Act, 2001, The Factories Act, 1948, The Companies Act 2013, The Protection of Women from Sexual Harassment at Workplace Act, 2013 and Prevention of Money Laundering Act, 2002 do provide a robust framework for addressing ESG. However, to translate the vision of the law into ‘actual impact', concrete prescriptions are required. For instance, incorporating the ‘green building' aspect in the National Building Code was a significant step toward introducing sustainability aspects in our buildings.
A fresh look at our existing laws from the evolving lens of ESG, combined with the use of technology, particularly information technology, in developing a monitoring and review mechanism, would be helpful.
Sources: ET, IEA, AR-6
Citation: This Insight may be cited as InfEneTy ‘ESG – A Value Creator for India Inc' 22.06.2023
Originally published by InfEneTy
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