Industrialization has created ample opportunities across the globe. But it has also led to problems like rising global temperatures, natural calamities, extreme weather, a decrease in biodiversity, the spread of diseases and growing inequality. The biggest contributors to emissions are energy industries, followed by manufacturing and construction.
Fortunately, the awareness of ESG (environmental, social and governance), which is used interchangeably with sustainability, has placed a spotlight on businesses worldwide to target goals transcending maximizing profits and minimizing risks. With the responsibility to protect the environment, businesses are being closely scrutinized for their ESG criteria by investors and regulators.
What does it mean to be sustainable? It means you conduct your business ethically, paying attention to social and environmental impact and economic development.
ESG in India
An S&P Global report suggests that by 2050, India’s 52% of the gross domestic product (GDP) would be exposed to risks like rising sea levels, unpredictable weather patterns, floods, wildfires or storms. It is clear that embracing sustainability is no longer a choice for businesses but is imperative. Businesses in India are following their global counterparts and are paying close attention to the ESG framework.
The Sustainability Yearbook 2022 by Crisil revealed that Indian companies have significantly improved their ESG scores. However, they remain low on disclosures. Only one-fifth of the 586 companies in the report have made their sustainability report for fiscal 2021 public. The highest disclosures have come from FMCG and hotel industry, but auto, OEMs, lending, and cement companies have also shown positive signs. For instance, three out of five companies shared the use of recycled and sustainable source materials in the textile sector.
India is one of the few nations worldwide with a Corporate Social Responsibility (CSR) mandate. It is one of the two watershed moments for India in the sustainability sector. Under the Companies Act 2013, it is mandatory for companies to report their spending on CSR activities. Companies which have a net worth of INR 5 billion ($61 million) or more (or turnover of INR 10 billion or more, or net profit of INR 50 million or more), have to spend 2% of their net profits on CSR initiatives.
Talking about sustainability measures in India, another watershed moment has been the Securities and Exchange Board of India (SEBI) making it mandatory for the top 1,000 listed companies by market capitalization to make the Business Responsibility and Sustainability Report (BRSR).
Furnishing a sustainability report came into effect on April 1, 2022. It will lead to the development of businesses that are responsible. It is a good starting point for the country’s under-progress ESG framework. The concerted efforts will make India a primary market for sustainability solutions and green finance, critical to global ESG ecosystem evolution.
Importance of ESG among businesses
Earlier, following the ESG mandate was a clear public relations tactic. But today, it has evolved to become a critical factor for the long-term success of businesses.
What ESG means has also changed quite a lot over the years. It’s more than just ticking off a box in the compliance checklist. It is taking ownership of the consequences of the businesses and working towards creating a positive impact by partnering with the right groups.
Another reason for the heightened importance of following the ESG mandate is the presence of ESG-aligned capital among global investors. It amounts to some $120 trillion, according to the United Nations’ Principles for Responsible Investing (UN PRI).
Investors want to know how businesses are creating an impact on society, and it affects the company’s market valuation. Institutional investors want to focus on businesses accepting ESG issues. From investors to market forces and regulatory bodies, all are pushing for ESG action by businesses.
Sustainability is not just a buzzword anymore. It is impacting businesses in India just as much as globally. Companies must be vigilant and proactive about their functions if they want long-term success in this competitive environment.
Creduce is a Gujarat-based carbon credits developer and supplier.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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