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ESG Investing – Contribute to a better world



Globally participation of organizations in Economic, Social and Governance (ESG) has not only gained impetus but has cemented its way in the functioning of the working culture. The demon of global warming / climate change has propelled companies into investing more into ESG related activities. The onset of Covid-19 pandemic augmented and gave an additional push in ESG investing. India is also now taking rapidly conscious strides on the course of ESG investment.


The essential question which needs to be understood is that what does one comprehend from investing in ESG?


Potential Investors today, internationally, are socially conscious and are generally assessing the organizations’ ESG standards and benchmarks before making the decision of investment. These standards are generally applied in the day to day working of an organization. Environmental standard is measured by evaluating the safeguards the organisation takes to protect and improve environment, which shall also transcend to the Corporate Policies adopted by the organisation. Social standards are surveyed to understand the Employer-Employee relationship, vendor and customer relations and the steps taken by an organisation to improve the community where it operates. Leadership, internal controls, executive reach-out, audits etc are appraised to see the Governance standards.


Indian legislature has introduced the concept of Corporate Social Responsibility on Companies and made it a mandate of law for companies to contribute towards upliftment and betterment of society. Now, investing towards ESG is a further step in the direction towards growth of economy, Social upliftment and overall Governance to boost and build a sustainable business environment & economy


In 2012, the Securities and Exchange Board of India (SEBI) through its ‘Listing Regulations’ in 2012 mandated the top 100 listed entities by market capitalization to file Business Responsibility Reports (BRRs) from an environmental, social and governance perspective and with the intent of engaging businesses more meaningfully with their stakeholders going beyond regulatory financial compliance.


In furtherance to achieve and regulate ESG, SEBI came up with a circular No. SEBI/HO/CFD/CMD-2/P/CIR/2021/562 dated 10th May 2021 and replaced its earlier Business Responsibility Report (BRR) with a new Business Responsibility and Sustainability Report (BRSR). The circular on BRSR applies to top 1000 listed companies by market capitalization and comes into effect from 1st April 2022. The Circular requires the companies to give disclosures about BRSR activities within the company so that the public investors can take an informed decision regarding their investments and its impact of ESG.


Disclosures towards an organisation’s approach to mitigate or adapt to the risks associated with the environmental aspect, Sustainability related goals & targets and performance against the same. Environmental disclosures covering aspects such as resource usage (energy and water), air pollutant emissions, greenhouse (GHG) emissions, transitioning to a circular economy, waste generated and waste management practices, biodiversity etc.


Earlier, the Ministry of Corporate affairs, Government of India, with the objective of mainstreaming the concept of business responsibility, had issued the 'Voluntary Guidelines on Corporate Social Responsibility’ in 2009. These guidelines were revised by the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 (NVGs) and formulated the National Guidelines on Responsible Business Conduct (NGRBC). The NVGs were developed based on India’s socio-cultural context and priorities as well as global best practices.


With ESG gaining momentum, what is perceived is that the companies are looking beyond making money and are consciously taking steps to improve the environment, take measures and work towards emancipation of the society and also adopt sustainable governance processes in its affairs from ESG perspective. ESG measures are being adopted to create a difference to the climate and are being embedded within the working atmosphere and employees are encouraged to work more effectively and efficiently by taking an approach which is conducive to organizational targets as well as environment. An added responsibility towards ESG is now being built within the ecosystem of a corporate structure.


ESG initiatives which an organization, as a matter of policy, takes is adopting best practices within the organization to reduce pollution and carbon footprint, framing of appropriate polices for waste management etc. Social areas would bring within its ambit the steps that an organisation take to ensure healthy environment for its workers and employees, gender equality at work. The governance part would refer to the general governance of the organisation.


There is abundance of knowledge and debate in respect of ESG awareness, however, the time has now come for organisations to convert these values of ESG into actual action and validate them in the day to day business activities. The integration of ESG into the business module and holistically implementing, surely adds to the value of the organisation and environment. In addition to assessing the valuation of companies on its monetary value, sustainability of the business, the worth of any organisation is also directly related to the depth of the inputs the companies are willing to put into ESG. New thinking with ESG being the focus is the need of the hour. ESG is now not only a legislative mandate but it reflects the Societal needs and business opportunity which jointly can transform a company’s strategy, performance, value, and results.


In a developing nation like India, ESG journey of various companies/ corporates, at the moment is set to make inroads into the clear ecosystem of business environment to add measurable value, environmental sustainability, engaging with employees and providing them with hygienic work conditions, attract investors to invest in companies that actively participate in ESG areas, brings clarity to investors to make a conscious decision to invest in such companies.


The dimensions of ESG can be summarised in three ways namely (i) re-defined manner of strategy formation (ii) robust reporting on steps on ESG and (iii) overall transformation of business. On strategic formation, the company delves into thinking mode as to what is to be done and under what regime and what more can a company do to act more in terms of ESG to maximise its own worth. On reporting, ESG helps companies to assess its functioning & make processes to protect environment by reducing carbon emissions, employee diversity and supply chain sustainability. Third aspect of transformation ensures that the companies drives ESG concept into the veins of the business. Steps to reduce carbon footprint by taking various measures, transforming the functioning into digital arena.


ESG, today is not a mere formality, but is a culmination of esoteric debates of environmentalist, socialist, strategist, economist and technologists which have successfully nudged organisations in embedding principles of ESG by blending conscious responsibility with holistic transparent transformation of business.

 

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