Why Indian Companies should expedite to be ESG-ready?

The three words have already made quite a buzz around the globe. With so many countries hopping on the ESG train, how can India leave itself behind in the sustainability journey? Hon’ble Prime Minister Narendra Modi has pledged in the COP meeting that India would be carbon neutral by 2070. This ambitious target demands ambitious efforts in the direction of sustainability, especially by large corporates. India needs to be future-ready to effectively achieve these targets and contribute to bringing Paris Agreement to ultimate success. And it's time to convert words into actions starting today itself.

Keeping up with the global developments

The pace with which ESG is developing in other parts of the world, especially the USA and EU have created certain pressure on India as well. Companies across the globe are engaging in ESG reporting. The Indian government is trying to seep ESG into the country’s corporate system and companies are trying to abide by it, a little out of regulatory compliance and the rest out of their own conscience.

Non-adaptors are losers

Ethical business practices have always been around but now have become a mainstream topic. Certain dimensions of ESG have been present in the Indian regulatory framework as a mix of hard laws and soft codes of governance for a long time now. For example, CSR (Corporate Social Responsibility) spending and reporting under the Companies Act 2013. According to the legislative enactment, section 135 mandates companies who fulfil the required criteria pertaining to net worth, net profit and turnover to spend 2% of the average net profits towards the betterment of society. It may include causes surrounding poverty, healthcare, nutrition, clean water, environmental protection, gender equality and so on. The Act also mandates the company to submit an annual report on CSR. There also exist a number of environmental laws in India to prevent pollution and protect wildlife. The Labour laws require companies to respect the human rights of their employees and ensure their health & safety in the workplace.

But, the spotlight today everywhere is on ESG holistically and India is no exception. The ESG framework is continuously evolving as it provides an effective solution to the pressing problems of the planet and is trying to make a significant difference to the world at large. Investors care about a company’s ESG policy and the government of India is mandating companies to care about ESG.

Companies have also on their own visualized the risks and opportunities attached to anti-ESG practices. They do not want to be on a losing end when the importance of sustainability is being repeatedly broadcasted through every medium. They are highly convinced that merging ESG with a company’s mission is highly rewarding. It helps in the enhancement of public image and shall uplift investor buy-in.

Therefore, it is not wrong to say that adapters to ESG will emerge as winners and those who act contrary to ESG values are surely going to face the wrath.

SEBI BRSR

This is one of the important reasons why companies should expedite to be ESG-ready. The framework is an implementation of NGRBC [National Guidelines for Responsible Business Conduct] principles. The introduction of BRSR [Business Responsibility and Sustainability Report] by SEBI is a landmark move that can change India’s sustainability landscape. It replaces the then-existing BRR (Business Responsibility Report) by making it more detailed and meticulous. BRSR is divided into 9 Principles that relate to-

1. Conduct business in an ethical, transparent and accountable manner

2. Safe and sustainable goods and services

3. Promote employee well-being

4. Respect stakeholders’ interests’

5. Promote human rights

6. Protection and restoration of the environment

7. Influence regulatory policies in a responsible and transparent manner

8. Promote inclusive growth and equitable development

9. Consumer engagement in a responsible way.

BRSR requires company disclosures on these nine principles in a comprehensive manner. At present, BRSR reporting is mandatory for the top 1000 listed companies by market capitalization and voluntary for the rest. SEBI has also introduced BRSR Lite for unlisted companies, in order to make them aware of their ESG responsibilities and also make them future-ready for ESG compliance. Taking notice of the situation, companies falling within the scope of BRSR is bound to be manifold.

BRSR surely carves a path for a sustainable economy by holding companies accountable for ESG disclosures. ESG reporting is also reflective of the changing demands for greater transparency.

Sustainable banking network (SBN)

SBN and Financial Supervisors Network for Greening the Financial System (NGFS) have been established to encourage sustainable financial practices as assessing ESG risk is now part of the credit appraisal process. Green finance is supported by central banks and the initiative was recently joined by RBI in April 2021.

ESG in the Investment domain

A novel development in the investment fund has to be the launch of ESG funds. These funds are exclusively dedicated to the ESG theme highlighting the idea of sustainable investing. When sustainability principles are integrated into investment decisions by investment houses, an ESG fund is born. These funds can evidently be seen to have outperformed in the market as compared to regular funds and have thus grabbed the attention of many investors who are looking to invest in a cause. Fund managers have opined that the results will further encourage people to invest in companies that possess strong business ethics, have started adopting environment-friendly practices and respect work-life balance more than ever.

With everything above pointing positively towards ESG adaptation, Indian companies should expedite to be ESG-ready. Because the idea of ESG is worth the buzz and can really change your life.

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