Dr Rajan Samuel, MD, Habitat for Humanity India talks on Housing for All
Habitat for Humanity India – Global Environmental, Social, and Governance (ESG) investing gained steam after the epidemic as investors viewed COVID-19 as the first “sustainable” catastrophe of the century. According to a report by EY, 90% of foreign investors looked at a company’s ESG performance, and 86% prioritized corporate decarbonization when making investment decisions.
Only 25 out of 5,180 investors in India have signed the United Nations Principles of Responsible Investing, indicating that ESG is still in its infancy there (UNPRI). However, numerous clean energy firms and environmentally friendly commercial ventures began to receive funding from global asset managers, private equity funds, sovereign wealth funds, and pension funds.
Habitat for Humanity India
What makes ESG significant in India?
India’s Prime Minister pledged to achieve net zero emissions by 2070 in the Paris Agreement of the United Nations Climate Change Conference in 2021. In order to protect the environment, the interests of numerous stakeholders, and business sustainability as a whole, corporate organizations must include ESG principles.
Indian Businesses are quickly integrating ESG into their overarching business strategy, spurred on by a multi-trillion dollar global pool of ESG-driven finance. They realize that their obligations go beyond generating financial gains and include having a beneficial impact on society and the environment. The implementation of ESG will increase corporate growth, improve public perception, and assist businesses in raising finance more cheaply.
The government imposes strict regulations on businesses operating in high-emitting industries including industry and energy. ESG disclosures are now required for the top 1,000 listed businesses by the Securities and Exchange Board of India (SEBI) as part of its Business Responsibility and Sustainability Reporting (BRSR) initiative. For businesses with a net worth of Rs 5 billion, a revenue of Rs 10 billion, or a net profit of Rs 50 million, India has established guidelines for Corporate Social Responsibility (CSR). To get funding from international ESG investors and financiers, these businesses must invest at least 2% of their net profits in CSR initiatives and reveal their ESG profiles.
Post-COVID, India’s banking and non-banking sectors have urgently switched focus to sustainable development. The RBI joined the Network for Greening the Financial System (NGFS) to contribute to global green finance and drive India’s financial sector towards policy formation and climatic risk resilience development. The bank also focused on stress testing, strategy building, capacity building, and risk governance structure to address climate risk issues. Moreover, the State Bank of India formulated ESG-compliant lending policies for companies, pushing them to act more responsibly.
Where is the ESG adoption gap that businesses need to fill?
Although ESG commitments are supported by three pillars, the letter “S” is frequently absent from the chain connecting corporate strategy and regulatory compliance. India faces a significant issue in creating jobs, thus the government is working hard to employable youths through massive employment programmes. It intends to fill 890,000 openings in ministries and central departments, which will result in the creation of 1 million new jobs.
If Indian businesses do not create strong ESG frameworks as a top priority, they risk losing Rs. 7,138 billion in the next five years as a result of climate-related risks. Businesses should exhibit climate resilience and work to reduce emissions as a preventative measure to draw investors in the following ways.
Maximising the use of resources
Businesses of all sizes should adopt the growing ESG frameworks to meet compliance requirements. Sustainable sourcing, resource allocation, and efficient use of resources including fuel, raw materials, air, and water are crucial for environmentally conscious businesses. Waste management, scope emissions, water use, 3R practises, Extended Producer Responsibility (EPR), and Life Cycle Assessment (LCA) requirements should all be taken into consideration. If Indian businesses do not take precautions against climate-related risks, they could lose Rs. 7,138 billion in the next five years.
The SEBI mandates examine the firm’s interactions with internal and external stakeholders as well as how it safeguards the welfare of its employees.
Therefore, job opportunities, employee welfare, worker safety and training, preservation of human rights, social impact evaluation, gender equality, and women’s empowerment should all be included in a company’s social indicators. Similar to this, anti-corruption and anti-bribery rules, conflict management, remuneration policies, staff retention plans, and stakeholder engagement initiatives should all be part of corporate governance.
According to a PwC analysis, firms’ ESG agendas include reporting, strategy development, and business transformation. Senior executives will be crucial in formulating strategy, directing performance, reporting results, and guiding a company’s ESG transition, according to this prediction. To streamline operations, supply chains, and customers, businesses should assign qualified personnel to gather and analyse data, develop customised datasets, and use ESG data tools.
Eliminating ESG washing
To prevent unintentional ESG washing, businesses should identify and track ESG-driven risks and opportunities as well as deal with transparency challenges. To make ESG standardisation assessment simple for investors, financial decision-making should include data visibility, compliance with global disclosures, and data comparison.
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