Future proofing ESG landscape
Environmental, Social, and Governance, or ESG, has grown in significance for firms in the contemporary environment. It's essential that you understand why ESG is so crucial for your business as more and more businesses participate in sustainability activities. ESG is all about identifying and controlling the risks that are related to your company's operations. Making sure you take the essential steps to be a responsible corporate citizen is the key. In this article, we'll examine some of the essential elements you should take into account while researching ESG strategies for your business, as well as why ESG is more crucial than ever.
What is ESG ?
ESG is a methodology for evaluating how well an organization performs in its commercial operations and in relation to numerous ethical and sustainable challenges. Furthermore, it offers a means of estimating the opportunities and dangers for business in certain fields. ESG investing, a technique used by certain investors in capital markets, involves using ESG criteria to assess businesses and inform investment decisions.
The purpose of an ESG programme is to ensure accountability and the implementation of systems and processes to manage a company’s impact, such as its carbon footprint and how it treats employees, suppliers, and other stakeholders. Sustainability, ethics, and corporate governance are typically considered to be non-financial performance indicators. ESG initiatives also support broader business sustainability initiatives, which attempt to position businesses for long-term success based on ethical corporate governance and commercial practises.
3 Pillars of ESG
usage and effectiveness of energy.
include greenhouse gas emissions in the carbon footprint.
both water and air pollutants.
loss of biodiversity.
Depletion of natural resources.
Paying workers fairly, including a living wage.
employee involvement and experience.
safety and health at work.
programmes for diversity, equality, and inclusion (DEI).
Privacy and data protection regulations.
treating suppliers and customers fairly.
levels of customer satisfaction.
Relations with the local communities in which an organisation operates, including those ties and impacts.
financing of initiatives or organizations that support underprivileged populations.
support for labor laws and human rights.
corporate management and leadership.
structure of the board, including its diversity and organisation.
policies on executive compensation.
Integrity in business and financial transparency.
initiatives for risk management and regulatory compliance.
moral business conduct.
regulations governing political donations, lobbying, conflicts of interest, and corruption and bribery.
programmes for whistle-blowers
What is the Need for ESG in India?
The importance of investing in businesses that are dedicated to addressing these problems and advancing social justice is underscored by India’s significant environmental challenges, which include:
Air and water pollution, deforestation, and climate change. India also faces significant social challenges.
Companies operating in India may encounter difficulties with corruption, regulatory compliance, and corporate governance due to the country’s complicated regulatory and legal environment. In order to reduce these risks, it is becoming more and more important to reward businesses with effective governance processes.
By signing the Paris Agreement at the United Nations Climate Change Conference in 2021, India’s Prime Minister promised to achieve net zero emissions by the year 2070. As a result, corporate organisations need to include ESG principles to protect the environment, the interests of different stakeholders, and overall company sustainability.
Indian companies are implementing ESG into their whole business strategy quickly, encouraged on by a multi-trillion-dollar global pool of ESG-driven finance. They understand that their obligations go beyond just generating profit and include having a beneficial impact on society and the environment. Adopting ESG practises can improve public perception, promote corporate growth, and enable lower-cost capital raising for businesses.
Businesses are obligated by Section 134(3-m) to submit an annual financial statement along with an energy conservation report from their board of directors.
Under Rule 8(3)(A) of the Companies (Accounts) Regulations, 2014, which requires the board to provide information regarding energy conservation, this requirement is further described.
Additionally, under Regulation 34(3) of the SEBI (Listing Obligation and Disclosure Requirements) Regulation 2015 (LODR Regulations), which was further modified under Regulation 34(2)(f), companies are required to disclose opportunities, risks, concerns, and threats as part of their annual reports beginning in 2021.
The top 1000 listed firms will be required to submit ESG-related data on an annual basis beginning with the financial year 2022–2023 under this new guideline, which replaces the existing BRR (Business Responsibility Report).
Guidelines for responsible finance have also been released by the Indian Banks Association (IBA) detailing how to include ESG risk management into the operations, business strategy, and decision-making of financial institutions.