What is the status of its implementation?
ESG can be viewed as an advancement of CSR, the voluntary guidelines for which were published by the Government of India in 2009 and subsequently refined under the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business in 2011. These eventually gained legislative standing in India with CSR becoming a mandatory requirement through the provisions of section 135 of the Companies Act 2013. The last decade has seen some radical changes in the manner in which CSR has been managed in India and also across the globe. India was one of first countries to enforce a law to enhance the level of CSR and the United Nations followed suit in 2017 by developing a CSR structure for companies to follow with their business objectives. CSR picked up steam after 2013 in India and while many may believe that ESG is still in its stage of infancy, it would seem to me that the same has been gaining considerable traction in India, in terms of appreciation of merits and adoption in principle, specially post the COVID pandemic.
In your opinion, do you think ESG is here to stay?
In a world that is witnessing strong resurgence from a widespread epidemic and uncertainty, the corporate environment has changed considerably. Stakeholders are increasingly demanding accountability, transparency and responsibility, with risk management and corporate governance becoming two key buzz words. ESG provides a framework that enables stakeholders to assess the effectiveness of their risk management frameworks on parameters that go beyond the world of finance to environmental, social and governance factors. It also places emphasis on non-financial factors that are being used as metrics for guiding investment decisions, while displacing a sole focus on financial returns. It is in the interests and protection of all stakeholders of organizations that the concept of ESG gains widespread adoption.
What is the relevance/importance of ESG for companies?
Corporate sustainability is not a new movement. However, unlike the 1990s, this is currently not restricted to the reduction of the environmental impact. ESG holds merit on social grounds as the same seeks to enhance inclusive growth, which inextricably, is an integral component of any economy’s quest for development. While CSR brought under its ambit specific sections of the society that had been relatively neglected from the mainstream of development, ESG is more measurable, both in qualitative and quantitative terms; and has a broader process and impact, by integrating social, environmental and human development concerns in the entire value chain of corporate business. Sustainability in the current context should not only be measured by the societal impact of an organization, rather should encompass the holistic outlook of economic, environmental and governance priorities that an organization sets out in order to optimize the value creation for its business and all stakeholders.
What are the challenges that companies face during the implementation of ESG? Is there a proper framework yet, or can it be expected soon?
Limited awareness, inadequate resources to integrate ESG considerations into business practices, varying data and emerging regulations with guidelines are some challenges being faced by organizations today. In this context, it is fair to acknowledge the ongoing measures to set out disclosure requirements for ESG such as the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, the formulation of Business Responsibility Reports by the SEBI followed by a more comprehensive integrated mechanism for Business Responsibility and Sustainability Reporting (‘BRSR’). The BRSR seeks disclosures from listed entities on their performance against the nine principles of the National Guidelines on Responsible Business Conduct.
Will true comparability of ESG norms and practices be attainable in the short term, or will we see harmony emerge from discord. Time will tell. However, regulators, standard setters, practitioners and stakeholders will need to work closely together if realization of the true value is to be derived from the impact of ESG.