ESG strategies help in enhancing business operations and realise sustainable goals

Recent surveys have suggested that 80 percent of the world’s largest companies report exposure to physical/market transition risks associated with climate change, as climate-related disruptions are projected to cost businesses over $1.3 trillion by 2026.

As per a report published by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Wealth Management, 77 percent of individual investors have shown interest in investing in companies or funds that consider creating positive social and/or environmental impact while also achieving market-rate financial returns. Further, nearly 60 percent of the surveyed investors globally anticipate increasing sustainable investments over the next year.

Nearly 50 percent of consumers claimed to have paid 59 percent more for products deemed to be “sustainable or socially responsible” in 2021. Compelled by the consumers’ desire for sustainability and social responsibility, companies are now more than ever willing to transition to more sustainable solutions into their fundamental strategies.

A report published by PwC in 2022 concluded that investors globally are recognising ESG investing massively, with ESG-focused investment seen soaring to $33.9 trillion in 2026 from $18.4 trillion in 2021, while Asia-Pacific (APAC) is expected to triple by 2026 ($3.3 trillion).

ESG Performance in India

While India has made tremendous strides in promoting ESG regulations – being one of the first nations to incorporate ESG disclosures via the Companies Act, 2013 – challenges persist, particularly around labour and environmental risks. A recent report, highlighting India’s supply chain risks in 2023, indicates risk indices like freedom of association and forced labour dropping to over 31 percent and 6 percent, respectively, within the last year.

India’s Business Responsibility and Sustainability Report (BRSR), an effort under SEBI for the top 1,000 listed companies to disclose their ESG compliances, is a step in the right direction as we move towards a more cognizant industrial perspective, in harmony with the global order. However, it is crucial to note that despite its efforts to become a global competitor, most Indian companies struggle to meet their ESG requirements – according to a survey by Deloitte India, only 27 percent of the organisations in the country feel equipped to meet their ESG compliance requirements, while only 15 percent believe their suppliers are adequately prepared to comply with their organisations’ ESG regulations.

How Can Indian Organisations Be More Proactive?

To ensure robust integration of a sustained ESG policy, it is essential to consider a fundamental strategy for medium and long-term impact.

Companies must initially identify their presence in the existing and potential markets to analyse the organisation’s performance and prioritise stakeholder needs, post-which, strategies achievable within a span of 3 to 5 years can be envisioned. Embracing the UN’s SDGs as the basis of the ESG strategy is pivotal in demonstrating a company’s commitment to not only enhance its social responsibility but also improve key value drivers, such as sales productivity and customer-centric ideology.

Diagnostic workshops via Value Stream Analyses further enable businesses to define roadmaps towards their ESG objectives, followed by the development of clear strategic goals, such as supplier development, energy efficiency, re-engineering of products, eco-innovation, and customer experience improvement.

Regular monitoring of results is imperative to identify gaps between the development and execution of the ESG strategies to ensure envisioned results in the long term.

As we move towards a generation that is more receptive and sentient to climate change and human rights, organisations must recognise their role and adapt to the current paradigm of consumer behaviours and investor relations.

Jayanth Murthy is Joint Managing Director, South Asia & Africa at Kaizen Institute. Views are personal and do not represent the stand of this publication.