By Punit Renjen
Environment, Social and Governance. ESG. This three-letter acronym now dominates the conversation among government, business and community leaders. And with good reason.
The urgency around issues such as climate change, access to education and health equity has propelled ESG to the forefront of corporate agendas and strategies. In India and around the world, disclosure requirements, which compel companies to identify and report their ESG responsibilities, have become more uniform and consistent, a testament to this long-awaited (and, in my view, much-needed) change. .
Effective this fiscal year, the Securities and Exchange Board’s (SEBI) new reporting format – Business Responsibility and Sustainability Report (BRSR) – came into effect. BRSR will allow the top 1,000 listed entities by market capitalization to voluntarily disclose their compliance with various ESG measures for FY22, and on a mandatory basis from FY23.
Although India gets a one year dress rehearsal, I think all organizations – whether they are in the top 1000 or not – should strive to join the BRSR and go beyond , as soon as possible. Not just because the new requirements will mean that ESG performance data will be available and comparable to everyone, but because it’s the right thing to do and the right thing to do for business.
Adapting to a new regulatory framework is a significant change and a challenge. But there are three steps leaders can take now to ease the transition.
First, perspective is key. Business leaders should view disclosure standards not as a compliance requirement, but as the structure around which strong businesses are built. The reality is that businesses often thrive when they are designed to create social value alongside financial value. Research continues to confirm this. Example: Over a 12-year period, the MSCI India ESG leaders index has consistently outperformed the broader market, represented by the MSCI India Investable Market Indexes (IMI), and their lead has widened. These results are testament to the fact that when companies choose ESG as a central part of their operational strategy, they not only improve their own performance, but they also position themselves more effectively with their customers, communities and business partners. This creates a halo effect that underpins their “social license to operate” and can even help attract and retain talent.
Second, be transparent and accountable. Companies can and should increase transparency by linking their reports to real-world issues and disclosing the impact they aim to achieve. For example, sharing ESG metrics on the financial impact of climate change. This allows investors to make decisions based on complete and comparable information. And that, of course, can have a positive impact on a company’s reputation. By providing financial markets with the right information, companies can build confidence that money is flowing where it is needed to build resilience and reduce emissions.
This level of transparency also has significant implications for the cost of doing business. Companies that are exposed to long-term climate-related risks may see their operating costs increase, while companies developing climate risk mitigation strategies could gain access to cheaper capital. We have seen this with the increase in sustainability-linked lending; loans granted to companies at a reduced rate if they meet bespoke sustainability objectives. A key priority for leaders is to support their ESG initiatives and aspirations with real investments. Show that they act on their data. It provides an assessable framework and is part of the feedback strategy that places ESG at the heart of the business.
Third, report above the minimum. The guidelines should be considered as a reference; organizations need to be bold. Going beyond the requirements will help give Indian organizations greater access to capital and greater competitive advantage. This could help boost India’s private investment cycle.
Several leading global reporting frameworks, such as the WEF’s Stakeholder Capitalism Measures, which Deloitte helped develop, involve significant investor involvement in their formulation. Additionally, more and more asset managers have launched ESG funds, which use ESG performance as a key element in making investment decisions. This is reflected in the different green financial products and instruments (equities, loans, bonds) that have evolved and the growing size of their market. By going beyond the requirement and understanding other global standards, businesses can open up to a growing pool of capital.
Right now, the momentum around ESG is high. This is where business is headed. And I think it’s critical that Indian organizations seize this moment to embrace ESG and make it a core part of their business. This will not only help secure their own future, but also help build a better world for all of us.
(The author is Deloitte’s Global CEO)