More boards across the world are seeing strategic importance of ESG compliance
A recent advertisement by a leading global technology behemoth took the reality of environmental, social and corporate governance ( ESG) reporting across companies to a different level of sharpness, with Mother Earth asking critical questions around the urgent contribution companies can make on all aspects of environment, social and governance.
It was a masterclass in storytelling. It also gave an insight into the questions that boards are either asking or being asked in some of the largest companies, as ESG gains prominence.
According to Kroll’s ESG and Global Investor Returns Study, September 2023, global companies with better ESG ratings outperformed their peers in stock market performance between 2021 and 2023. “Globally, ESG Leaders earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by laggard companies. This represents an approximately 50% premium in terms of relative performance by top-rated ESG companies,” said the report.
The report also said that more investable assets were being counted as sustainable, increasing the materiality of its impact. However, the report cautioned that with this rise in “ESG and climate-focused investment products and rising greenwashing concerns has led to a global regulatory shift toward requiring companies and investment funds and advisors to report on climate and other ESG issues”.
How is this playing out in India?
As the regulatory norms emerge, more companies will have to develop their ESG practices and more boards will have to enable sustainable ESG reporting practices. And that is not easy. Even as boards look for more qualified experts in these matters, and CXOs such as chief financial officers get directly involved in mapping ESG impact and implications, we tried to understand what can Indian companies do to proactively take this forward and to avoid issues of mis-reporting.
Jaya Vaidhyanathan, CEO, BCT Digital, a digital transformation company delivering fintech, regtech and cleantech solutions, says there has been a notable shift towards responsible corporate behaviour. This is because of the growing importance of ESG considerations within corporate boardrooms. ESG has transitioned from being a mere checklist item to a pivotal pillar of strategic governance. Companies across the globe are establishing dedicated board-level committees focused on ESG oversight, making substantial investments in tools for monitoring, measurement, and compliance.
Vaidhyanathan says Indian organisations are at the forefront of this transformation. They are not only obligated to adhere to mandates such as SEBI's Business Responsibility and Sustainability Reporting (BRSR) but are also aligning their practices with global benchmarks set by influential bodies like the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI). Furthermore, they are enthusiastically adopting cleantech-based ESG solutions to standardise metrics, effectively monitor performance and streamline compliance reporting.
“Investor engagement has emerged as a potent catalyst for ESG adherence. As responsible investment trends gain momentum, investors are increasingly integrating ESG factors into their financial decision-making processes. They are actively seeking out standardised reporting frameworks, such as the BRSR, to evaluate the sustainability and long-term viability of their investments,” she adds.
This means multiple shifts for companies to incorporate the best practices. Vaidhyanathan says emerging technology platforms offer comprehensive views of a company's ESG profile, facilitating compliance and strategic decision-making. These developments in governance and technology are fostering a more responsible corporate landscape, paving the way for a sustainable future where businesses thrive while contributing to societal and environmental well-being.
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