11/28/2023 | News release | Distributed by Public on 11/28/2023 07:10
The business landscape is rapidly evolving, and traditional notions of what defines corporate success continue to shift significantly. Increasingly, leading companies are aligning their growth and financial goals with sustainable development practices. Globally, 'Environment, Social and Governance' (ESG) oriented investing has seen a meteoric rise. According to Bloomberg Media's 'Sustainable Future Study, global ESG assets may surpass $50 trillion by 2025; that is, one-third of all projected assets under management worldwide.
In the automotive component sector in particular, companies are driving the ESG agenda by focusing on sustainability goals, efficiency across the value chain, and cleaner modes of production, while implementing strong governance frameworks. Auto component makers are also adopting circular economy practices by scaling advanced recycling and end-of-life logistics.
Legal requirements, mounting public awareness and higher expectations within the corporate sector as a whole, have seen companies strengthening their ESG focus as a global practice.
Increasing Focus on ESG Parameters
In 2021, CRISIL announced its first-ever ESG scores for Indian companies across sectors, based on a proprietary ESG framework. In the same year, the Securities and Exchange Board of India (SEBI) introduced new reporting requirements on ESG parameters called the Business Responsibility and Sustainability Report (BRSR) and made filing mandatory for the top 1000 listed companies by market capitalisation from the financial year 2022- 23 onwards. More recently, SEBI introduced the 'BRSR Core' for assurance by listed entities and ESG disclosures for the value chain.
India already has an official Corporate Social Responsibility (CSR) mandate for companies of a certain size and turnover, to spend two percent of their net profits on CSR activities. Besides being a morally sound edict, this has a practical benefit too: This growing emphasis on ESG can help make India a preferred market for sustainability solutions and green finance.
ESG Actions by India Inc.
As India's economic and diplomatic heft rises, ESG actions by "India Inc." will further aid our country's transition to a clean and climate-resilient economy. From running one of the world's largest renewable capacity expansion programmes, with corporates playing a huge role, to spearheading global climate partnerships, India is now a key player in the global sustainability movement. At the Conference of the Parties (COP26) held in Glasgow in 2021, India announced an ambitious net zero emissions pledge by 2070. We are seeing corporates playing a critical role in India's green economy drive through the building of an electric vehicle eco-system and investing heavily in green hydrogen and other renewable energy sources. More immediately, India's steering of the G20 presidency moves on complex issues, including green finance, by directing capital towards renewable energy, sustainable infrastructure, and clean mobility.
Investor Interest and A Sharper Focus on ESG
Investors and companies scouting for partners in India are increasingly integrating ESG factors into their decision-making. They also factor in supply chain practices to ensure potential partners and investors adhere to fair labour standards, human rights, and ethical sourcing. Companies that prioritise social responsibility and ethical governance are poised to be considered more attractive as investment prospects. An ESG focus is further intensifying as consumers progressively wield their purchasing power to influence industry practices and favour brands that align with sustainability, ethical conduct, and social responsibility.
For some, looking to skirt a commitment to sustainable practices or indeed affecting shortcuts for 'green efficiency' models allows a leveraging of their profit margins even as they present themselves as eco-warriors. Such operators need to realise that in effect their 'greenwashing' will not benefit them in the long run. Exposure to public awareness and the scrutiny of expectations can only have a detrimental outcome for any attempt that seeks to bypass these obligations. In the interim some measures that will contribute to better practices are:
Awareness and Education: Many industries still lack awareness about the importance of ESG principles. The government, leading industry associations such as CII, and educational institutions can play an even bigger and more effective role here.
Balancing Profit and Purpose: Finding the equilibrium between profitability and sustainability remains a significant challenge. Industries must innovate business models that integrate both objectives adroitly.
Measuring Impact: If we are to make real progress, an accurate measurement and reporting of ESG performance and implementation is critical. Industries should adopt and mobilisestandardised metrics, digital measuring systems, Artificial Intelligence (AI), and reporting frameworks such as Business Responsibility and Sustainability Reporting (BRSR), Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB) norms and guidelines for consistency in reporting.
The Way Forward
With increased investor interest and a sharper focus on ESG, prioritising sustainability, social responsibility, and ethical governance is no longer optional; it is a prerequisite for success as well as a public expectation. It must become and be recognised as a genuine desire, motivated by long term commitments to sustainability instead of merely presenting itself as a 'box-ticking' exercise or any attempt to 'greenwash' a way through. Such a heightened focus on ESG which is bound to continue, will separate the wheat from the chaff among corporates.
On a broader level, India can become a global exemplar of responsible business practices, demonstrating that economic growth can coexist harmoniously with the well-being of people as well as the health of our planet. This journey presents us with challenging prospects, but it is undeniably the right - and only - trajectory we must adopt, for a more sustainable and equitable future for all.
This article was contributed by Mr Jaisal Singh, Vice-Chairman, Anand Group; Executive Chairman, Anevolve and Co-Chairman, Mando Automotive India Limitedand was first published in CII's Northern Insights.
- Cii Blog