In an interaction with Urvi Shrivastav, Editorial, BW Businessworld, Nawneet Vibhaw, Partner in the Environmental Law practice at Shardul Amarchand Mangaldas & Co. speaks about the growing importance of ESG, why corporates must adapt to the changing times, and what they can do to achieve the same.
ESG stands for Environment, Social, and Governance issues. For me, ESG is a state of mind, it is a more responsible way of doing your business. The ESG issues are not new for any jurisdiction, including India as our laws also provide for environmental protection and social responsibility. The good part is that there is a lot of conversation around it, a lot of people are talking about it and have realised the importance of being responsible. When we talk about environment, we are clearly mindful and willing to ensure that there is no harmful impact of your activities on the surroundings. Social issues are meant to scrutinise the manner in which one conducts the business to ensure that the community around does not face any adverse consequences. Governance implies that we carry out our activities in a fair and transparent manner, avoiding any corrupt practices etc. These requirements have always been there in our laws and it is just a more ethical way of conducting your business. These compliances also work as a guiding tool for investors and bankers who want to invest in companies that are more responsible.
It would be incorrect to say that companies have to drastically alter the ways in which they carry out their businesses these days, compared to how they were doing it earlier. We have always had laws that deal with environment, labour, governance, etc. To say that we need to overhaul everything that we have been doing so far will not be correct. All compliant and responsible companies have always been doing these things, it is just that now there is an increased focus on these aspects. Now companies are expected to score well on these parameters. The expectation clearly is to do more than what one has been doing so far, and more importantly to document all of this in a manner that could be presented before the regulator and will also highlight compliance. In the last one and a half years, there has been a lot of discussion around ESG and everyone now knows why they should be focusing more on ESG parameters. This is not a compliance burden for them but a blessing in disguise and therefore all companies including MSMEs must take it much more seriously if they are not doing it already.
It does have an impact but please note that the idea behind ESG is not charity. When you follow these principles, you are essentially improving the efficiency of your people, your processes and getting better as a business. If you ensure you are hundred percent compliant with all the laws, it just improves the efficiency, perception and also the profitability of your business. There is no reason any company will not end up performing better than how it was performing earlier. If one is more conscious of the day to day activities, your performance and efficiency will improve and naturally the company profits will also improve. It will help improve the public perception and the company will be seen as being more responsible towards the environment and the society at large. A lot of people may see it as an additional compliance burden, but that is not the case at all. It is just a way of ensuring more efficiency. It will improve the image of the brand as well. When seen even from a pure profit motive, it makes a lot of sense for companies.
We have had a whole lot of guidelines related to ESG and we have also had formats like BRR, BRSR Lite and BRSR in India apart from the international frameworks which exist. A lot of awareness has been created with respect to the ESG parameters. The responsible companies have always been compliant. It is not correct to say that there is an undue focus on environment only. Clearly due to the state of India’s environment, environment may require a little more focus but the social and governance aspects are equally important and enough importance is being laid on them. A lot of companies indulge in welfare activities, as a part of their CSR. There are companies who have always ensured they are clean and clear in what they do. It is not correct to say that one part of ESG gets more importance than the other. This also depends on the sector and activities the company is involved in. Even if the companies were lacking, they are catching up given the buzz around ESG, including the webinars and seminars.
The webinars etc. were meant to bring the discussion around ESG to the forefront. From this financial year onwards, the top 1000 companies (by market capitalisation) have to compulsorily start reporting on the ESG parameters. The awareness has been created, now it is time for action. It is important that companies provide the required information and report appropriately. It will help them show how they have been creating a positive impact. Most companies are going to adopt ESG wholeheartedly in the next two years.
The top leaders need to be effective communicators in terms of why ESG compliance is important. A lot of companies now have Chief Environment Officers and Sustainability Officers on board. The idea is to have someone who is the conscience-keeper of the enterprise and explains to the management as to where they are actually going wrong, and what can be done better. The idea is to also bring those involved in the supply chains on board and ensure that their activities also have a minimal impact on the environment. As a leader you have to reiterate the importance of ESG compliance. It also has an economic impact, where not just investors, but all stakeholders including consumers will be looking at you. The senior management can also ensure education via training programmes and external speakers to highlight the importance of ESG activities.
Please do not see ESG as a compliance burden, because these are requirements which will make your business better and make it appear good. The idea is to see this as an opportunity to plug the loopholes and look within to find out what is it that you are not doing as well as you should have been, where is it that you have gone wrong or can possibly go wrong and fix those shortcomings. Use ESG as a tool to set your ‘house’ in order.
This article was originally published in Business World on 28 April 2022 Written by: Nawneet Vibhaw, Partner. Click here for original article
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