As the world is making sense of the post-pandemic complexity, change, and chaos, India is transitioning towards its trillion-dollar dream. The inception and execution of this dream revolve around the newest sustainability paradigm where all resources are meant to come full circle. The business world is aiming to turn circular in order to generate within their own product and consumption cycle more resources. The transition from a linear to a circular economy is well underway as more and more informal sustainability practices are formalized in emerging India.
Sustainability may well be called the new buzzword. Corporations are becoming self-aware and sustainability is being viewed as a dynamic marketing idea that provides long-term benefits such as improved customer connections and a solid reputation, all of which lead to growth. Who would have thought two decades ago that the business and economic arms of society will lead the way to solve sustainability issues as part of business profiteering? Issues that garnered limited interest are now attracting mainstream engagement including investor engagement. Legislative effort to invite, indulge and engage businesses in solving sustainability issues is the new normal.
Essentially, businesses are now more focused on the environment and social governance space as it becomes a key theme for investors. We are no longer in a world with unquestioning investors and businesses are being converted. Good governance and best practices demand that funds be invested in reliable, ethically sound, and environmentally-conscious companies. Investors are eager to know how businesses are impacting the communities around them and the environment at large. Investors have faith in businesses that focus on three things; planet, people, and profits.
For those who are new to the concept of ESG, the ‘E’ in ESG refers to a company’s performance as an environmental steward. It refers to a company’s carbon footprint policies, water consumption, trash recycling, and energy-conversion activities. The ‘S’ refers to concerns that affect employees, customers, consumers, suppliers, and the local community. The pandemic has thrown ‘G’ into sharp light and corporations are now being scrutinized for their business practices. The board, leadership effectiveness, audit practices, and corporate ethics are all part of the governance component.
According to emerging information, environmental, social, and governance (ESG) issues can pose major threats to operations and profitability. Companies that successfully manage such risks should have fewer business interruptions and deliver equivalent or more consistent financial performance over time. The consensus is that the ESG evolution is still in its early stages. As of now, India’s investment alternatives are restricted. However, India has recently seen the launch of a spate of ESG-focused funds, with many more on the way.
Engaging in an ESG theme in an emerging country like India will allow more enterprises to become ESGcompliant, resulting in sustainable growth for future generations and wealth creation for both companies and stakeholders. ESG investing is a good option for those who want reduced volatility and drawdown. To support the claim, according to a recent SEBI consultation paper on ESG funds, Mutual Funds must only invest in companies that are subject to the obligatory Business Responsibility and Sustainability Reporting (BRSR).
The regulatory initiative is a positive step toward establishing ties between a company’s financial success and its ESG performance. SEBI’s proposed framework is compliant with international standards and will act as a single source for listed firms to report on sustainability. It applies to the top 1000 publicly traded corporations by market capitalization for voluntary reporting in fiscal years 2021-22 and mandatory reporting in fiscal years 2022-23. It simply strengthens Indian companies’ reporting on ESG norms, which is encouraging to see.
