How focus on ESG can shape business of the future

Increased emphasis on ESG has lent a valuable opportunity to businesses to evaluate their existing mechanisms and make necessary changes.

In brief

• Businesses must ensure ESG reporting is meaningful and actionable for stakeholders.
• Failing to incorporate optimum measures and policies to establish responsible environmental practices may result in reputational damage along with monetary penalty.
  
• Social and governance factors are likely to find higher significance as companies strive to contribute to a more sustainable and equitable future.

Over the past two years, the Indian regulatory landscape has undergone a major overhaul. The Securities and Exchange Board of India (SEBI) has made it mandatory for listed companies to include Business Responsibility and Sustainability Reporting (BRSR) in their annual reports from April 1, 2022, showing their commitment to implementing ESG programs. The regulatory body now requires companies to not only identify ESG risks, but also detail their mitigation strategy and contingency plans against those risks. In September 2020, The World Economic Forum and the International Business Council (IBC) encouraged large global companies in the IBC–about 130 in all–to adopt ESG standards for their 2021 reporting, thus reaffirming the importance of ESG planning for organizations.

While considerable progress has been made in terms of ESG reporting in recent years with companies, investors, and regulators recognizing the importance of sustainability and responsible business practices, organizations must ensure ESG reporting is meaningful and actionable for stakeholders.

With data at the heart of almost all transactions, it is more significant than ever before. There is constant exchange of information which creates multiple lacunas in organizations’ code of ethics and whistleblowing policies at large, which can be exploited. Ensuring compliance with regulatory and industry standards is crucial for building trust in the capital markets. The changing conversation around ESG has lent a valuable opportunity to businesses to evaluate their data protection, data breach control mandates.

Organizations should have an effective crisis management response plan in place to handle such events in a tactful manner. Given the recent emphasis placed on ESG by governments across the world, organisations that fail to incorporate optimum measures and policies to establish responsible environmental practices are likely to face reputational damage along with monetary penalty. Since ESG performance has become a metric of evaluation for financial performance, not measuring up can leave company boards vulnerable to allegations of greenwashing, which can hamper their prospects in garnering potential investors. This is one of the reasons why the S and G factors of the ESG framework are likely to gain higher significance, as they help evaluate an organization’s overall performance and long-term success.