The Indian Prime Minister, Shri Narendra Modi announced to the world that India will achieve net zero emissions by 2070 and reduce Greenhouse Gas (GHG) by 2030. But one might ask, what has this got to do with the IT industry in India, the answer to that question is ESG. What is ESG? ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability. The efforts of attaining sustainability to meet the global efforts in keeping our environment safe is a cause that is being taken up by various governments seriously, including the Indian government.
This is why Indian businesses, especially the IT sector are forming their business strategies around ESG standards set by the government. This also helps potential investors screen companies for investment based on their ESG behaviour. As ESG investment is gaining importance and has a considerable impact on companies seeking investment opportunities, an increasing number of companies are ensuring that they are on the same path, as the standards are being set by the government. As a matter of fact, a recent survey says that 92% of SMEs in India are in lead compared to their counterparts in Asia when it comes to giving priority to ESG, where:
- Environmental: Looks at the impact of resource consumption of any business on the environment like carbon footprint and wastewater discharge, among other environmental impacting activities
- Social: Looks at how the business interacts with communities where it operates. It also looks at internal policies related to labor, diversity and inclusion policies, among others
- Governance: Relates to internal practices and policies that lead to effective decision-making and legal compliance. On the whole, ESG facilitates top-line growth in the long run, attracts talent, reduces costs, and forges a sense of trust among consumers
Business models now planned around ESG
Governments around the world including India have and are providing schemes and incentives for organizations implementing ESG and this is also one of the driving forces behind ESG adoption. As a matter of fact, SEBI (Securities and Exchange Board of India) recently revised ESG guidelines to ensure that India is in line with global compliance norms. This means the top 1,000 businesses in India by market capitalization should file a Business Responsibility and Sustainability Report (BRSR), along with their annual filings to the stock exchanges, starting in the 2023 FY. BRSR requires companies to disclose material environmental impacts, risks and concerns and median remuneration among others. This is the reason why organizations have slowly started modifying and planning their business models based on ESG policies and regulations set by government agencies. Post-pandemic, the efforts to plan business models around ESG are gaining traction as Covid is now compared to a climate crisis that may occur in the future impacting the global economy in the long run. The sudden supply chain crisis, reduced material availability and the manpower crunch that happened during the pandemic are all similar to what might happen if there is a climate crisis. One must take note that the increasing flash floods, wildfires, droughts and water depletion are just the initial problems of a large-scale climate crisis.
But it’s not just the environment that talks about ESG. It also means having a diverse and inclusive workforce from the entry level to all the way up to the board of directors. ESG also is about social impact expectations extended outside the walls of the company and to supply chain partners, particularly those in developing economies where environmental and labor standards may be less robust. When it comes to governance the analysts will consider how leadership’s incentives are aligned with stakeholder expectations, how shareholder rights are viewed and honored, and what types of internal controls exist to promote transparency and accountability on the part of leadership. With the increasing importance of ESG in businesses, data generation will increase multifold due to the information gathered from the organizations by the government which will help analysts process data to understand the current situation of the ESG impacts and help form policies for better implementation of ESG strategy. The other benefit of ESG is a new vertical of the profession that is seen growing i.e., the ESG strategists, executives, operations experts, etc.
Experts suggest certain steps be followed before and after adopting ESG policies:
- Zeroing in on the areas where ESG needs to be focused
- A survey to understand key areas for customers, employees and investors for ESG
- Understand different ESG standards, frameworks and policies
- Allocate resources and define strategies with accountability measures
- Check for the business’s industry-standard benchmark
- Assess on various levels internally to understand if the ESG is meeting the required guidelines and meeting the expectations of the key players i.e., investors, customers, etc.
- Be updated on the changing regulations and collaborate for better results
The benefits of implementing ESG in businesses outweigh the trouble of modifications
ESG helps companies be prepared for the future for themselves and for the world. With this adoption, businesses stand to gain much more than the usual business approach.
- The current population is ready to support brands that are sustainable. This helps businesses branch out to newer markets and expand in their existing locations as governments are more inclined to support such companies by providing licenses and issuing permissions to such companies
- Companies which switch to more sustainable methods of production tend to be more efficient and reduce their costs
- Strong ESG invites less scrutiny from the regulators and has greater operational freedom due to the need to meet the parameters set by the government agencies
- Target on ethical practices increases attracting the younger generation and talented workforce, boosting employee motivation and hence increasing productivity
- ESG data intelligence can also provide new avenues for capital generation
Taking a look back at what has been said, the Environmental, Social and Governance (ESG) strategy are exactly what businesses need today to expand, grow and help the environment. The private players going hand-in-hand with the government will help ease any problems set to arise in the future, ensuring that there are economic, social and environmental impacts on a positive scale. As businesses are the driving force behind the world’s progress, ESG is the catalyst that helps businesses achieve it. So, it is for the best that companies start implementing ESG.