In a rapidly evolving landscape where environmental, social, and governance (ESG) considerations are becoming central to corporate strategy, Saurav Bhandari, Head of ESG Solutions and Vice President of Client Services at SG Analytics, offers a deep dive into the current and future state of ESG in India. With his extensive experience and insightful perspectives, Bhandari sheds light on the emerging ESG trends in India and the labyrinth of regulatory norms around sustainable reporting in the country.
Read ahead as we explore the critical challenges and opportunities for Indian companies in ESG reporting, the impact of global standards like Scope 3 on sustainability practices, and the strategies needed to enhance ESG performance amidst India’s socio-economic diversity.
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Q. What are the emerging ESG trends in India? How do you envision creating an ESG framework that remains relevant amidst evolving economic and technological landscapes?
A. As the Head of ESG Solutioning at SG Analytics, I have the privilege of observing the dynamic and evolving landscape of ESG in India firsthand. The country’s rapid economic growth, coupled with increasing awareness and regulatory changes, has fostered several emerging ESG trends.
One of the significant trends is the enhancement of regulatory frameworkssuch as SEBI’s mandatory ESG disclosures for the top 1,000 listed companies. This aligns Indian businesses with global standards and emphasises transparency and accountability. Another crucial trend is the focus on climate action, driven by India’s commitment to achieving net-zero emissions by 2070. Companies are increasingly adopting renewable energy, enhancing energy efficiency and investing in carbon offset projects, facilitated by the rise of green finance, including green bonds and sustainability-linked loans. Another significant aspect of ESG market evolution is the integration of technology into ESG practices. For instance, the adoption of AI for data analytics and Internet of Things (IoT) for monitoring environmental impact is enhancing the accuracy and efficiency of ESG reporting and management. Additionally, there is a notable rise in investor activism, with stakeholders demanding better ESG performance, driving companies to adopt sustainable practices to attract and retain investment.
According to a 2023 survey conducted by Deloitte India, 88% of organisations believe that sustainability regulations will directly impact their businesses, and nearly 75% state that their investors rate their ESG performance highly. In this rapidly evolving economic and technological landscape, creating an ESG framework that remains relevant requires a multi-faceted approach. Based on SG Analytics’ recent research studies, I believe that collaboration between Business Responsibility and Sustainability Reporting (BRSR) and International Sustainability Standards Board (ISSB) would resolve various issues related to inconsistency in ESG reporting. Standardisation of ESG frameworks through the integration of ISSB will help align global standards and develop sector-specific guidelines to adapt and evolve with emerging ESG issues.
From a corporate perspective, to overcome challenges in emissions and other ESG indicator reporting, companies should develop standardised methodologies for data collection to ensure consistency and comparability.
Q. How can organisations navigate the regulatory landscape in India when developing their ESG strategies?
A. Navigating the regulatory landscape in India when developing ESG strategies requires a nuanced and proactive approach, given the country’s dynamic and evolving regulatory environment. Organisations can benefit from partnering with ESG consultants who can help interpret these regulations accurately and integrate them into the company’s broader strategy.
Additionally, developing a robust governance structure is critical. This involves setting up an ESG committee at the board level to oversee compliance and ensure that ESG considerations are embedded into the organisation’s strategic planning. Leveraging technology can also facilitate compliance. Implementing advanced data analytics and reporting tools helps track and report ESG metrics accurately, making it easier to meet regulatory standards.
Education and training are essential within organisations to ensure all employees grasp the importance of compliance and understand regulatory requirements.Training equips employees with skills in data management, which is vital for tracking and reporting ESG metrics accurately.This approach fosters a proactive governance mindset, integrating compliance into strategic planning and enhancing organisational transparency and accountability. Overall, these initiatives embed ESG principles across organisations, aligning with global standards and bolstering sustainability efforts.Finally, organisations should adopt a forward-looking approach by anticipating future regulatory trends and preparing accordingly. Thisinvolves not only complying with current regulations but also aligning with global best practices using benchmarking and ESG maturity assessments.
Q. How do you see the relationship between sustainability and the financial stability of a company evolving in terms of its corporate strategy?
A. I’ve noticed that the link between sustainability and financial stability is becoming a key part of corporate strategy. What was once seen as an extra cost is now recognised for driving long-term performance and resilience.
Integrating sustainability helps manage risks related to climate change and resource scarcity, thereby leading to more stable financial performance. For instance, the Carbon Trust reports that energy efficiency measures can cut energy costs by up to 20%, providing substantial savings. Consumer preferences are shifting towards sustainability. Companies that embrace this can enhance their brand reputation and customer loyalty, driving revenue growth. Moreover, investors are prioritising ESG criteria. In fact, Morgan Stanley found that 85% of individual investors are interested in sustainable investing, and these funds often outperform traditional ones during market downturns. Innovation in sustainability creates new revenue streams and attracts investors. Regulatory environments are increasingly favouring sustainability by offering incentives and helping in avoiding penalties, which further enhances financial stability.
In short, sustainability and financial stability are now intertwined in corporate strategy. Embracing this relationship helps manage risks, reduce costs, increase revenue, attract investment and innovate, making sustainability a core part of a resilient and financially stable strategy.
Q. Globally, some regions have made Scope 3 reporting mandatory for companies. What impact do you think Scope 3 rules will have on Indian companies in terms of sustainability reporting? Also, what are the major challenges that Indian companies face when it comes to declaring Scope 3 emissions?
A. The introduction of mandatory Scope 3 reporting in some regions marks a significant shift in global sustainability reporting practices. Whilst voluntary in India currently, there is a growing speculation that it may become mandatory in the coming years. This potential shift would profoundly impact sustainability reporting in the country.
Mandatory Scope 3 reporting would necessitate Indian companies to meticulously track and report indirect emissions across their value chains. This requirement aims to enhance transparency and accountability but poses challenges. India’s supply chains are diverse, unorganised, and fragmented which complicates data collection and potentially increasing costs. Several suppliers lack robust reporting mechanisms, raising concerns about data accuracy and consistency. Standardising methodologies, including the adoption offrameworks such as the ‘Greenhouse Gas Protocol’ tailored to the Indian context, becomes crucial. Aligning with global standards streamlines reporting processes and ensures comparability across industries. This alignment not only facilitates compliance with potential mandatory Scope 3 requirements but also strengthens sustainability efforts by providing clearer insights into environmental impacts across the value chain.
In essence, whilst the transition to mandatory Scope 3 reporting in India presents logistical and financial challenges, it also offers opportunities for companies to enhance their sustainability strategies, improve supply chain transparencyand align with global best practices in emissions reporting.
Q. How is the integration of environmental and social concerns shaping supply chain strategies globally and in India?
A. The integration of environmental and social considerations is reshaping global supply chain strategies, a trend increasingly relevant to India’s interconnected businesses. Regulatory pressures, consumer expectations and the imperative for sustainability are driving this transformation.
Globally, companies are reevaluating their supply chains to minimise environmental impact and uphold social responsibility. This includes optimising logistics for reduced emissions, transitioning to renewable energy sources and improving overall energy efficiency.Social responsibility is equally paramount. Companies are ensuring fair labour practices by enhancing workplace conditions and promoting diversity within their supply chains. This involves rigorous audits to verify compliance with labour laws and eradicate practices such as child labour, bolstering brand reputation and mitigating risks.For instance, in2017, France passed the Loi de Vigilance, also known as the French Corporate Duty of Vigilance Law or the Duty of Vigilance Act, which requires large companies to perform Human Rights and Environmental Due Diligence (HREDD) in their supply chains. For Indian businesses, particularly the top 250 listed entities by market capitalisation, compliance with BRSR from the fiscal year 2024–25 onwards is mandatory. This framework guides companies in meeting regulatory expectations and conduct ethical business in their supply chain.
In conclusion, the integration of environmental and social concerns is not only reshaping global supply chains but also presenting substantial opportunities for growth in a conscientious market. Indian businesses, deeply integrated into global supply networks, are required to adopt sustainable practices to comply with evolving global standards and meet consumer expectations.
Q. How do you foresee the expansion of sustainability reporting affecting small- and medium-sized enterprises?
A. The expansion of sustainability reporting is set to significantly impact small- and medium-sized enterprises (SMEs), bringing both challenges and opportunities. One of the main challenges is the resource constraint, as SMEs typically operate with limited budgets and staff. Implementing sustainability initiatives can be expensive and time-consuming, requiring investment in data collection and management tools, and possibly hiring an ESG consultant for ESG expertise. Data collection itself is another major hurdle, as gathering detailed information on energy use, waste management and supply chain practices can be difficult without established systems. This makes it challenging for various SMEs to produce accurate and comprehensive reports.
Despite these challenges, there are substantial opportunities. Engaging in sustainability reporting can build trust with customers and investors by enhancing transparency, offering SMEs a competitive edge as more consumers and partners prioritises sustainability. Moreover, sustainability reporting can drive operational efficiencies by identifying areas for resource optimisation, which leads to cost savings. For instance, through energy audits, organisations can reduce energy costs over time. New market opportunities arise, as larger companies and government agencies often require suppliers to meet sustainability criteria. By demonstrating sustainable practices, SMEs can qualify for new contracts and partnerships and become more attractive to investors. With ESG factors becoming crucial in investment decisions, showing strong sustainability performance can attract more investment.For instance, a report by Eight Versa found that 67% of SMEs witnessed reputational improvements with customers due to sustainability practices, and 45% experienced increased sales.
Q. How do you measure the success of sustainability initiatives in India, considering the socio-economic diversity of the country?
A. Measuring the success of sustainability initiatives in India, amidst its socio-economic diversity, requires a comprehensive approach that encompassesquantitative metrics and qualitative assessments. Quantitatively, success can be gauged through reductions in carbon emissions, water usage and waste generation, providing concrete evidence of environmental impact. Social indicators, such as improvements in access to education, healthcareand livelihood opportunities for communities affected by these initiatives, are equally crucial. Monitoring changes in employment rates, income levelsand overall quality of life offers insights into broader social benefits.
Moreover, compliance with regulatory frameworks such as the BRSR ensures effective integration of sustainability efforts into corporate governance, particularly amongst the top-listed entities by market capitalisation. A streamlined version of the BRSR framework is also voluntarily accessible for SMEs, facilitating broader participation in sustainable business practices across diverse sectors and organisational sizes. Stakeholder engagement plays a pivotal role in understanding perceptions and involvement in sustainability practices across diverse groups. Evaluating economic viability usingefficiency measures ensures the sustainability of initiatives over time. Ultimately, a holistic assessment,along with innovation, scalability, long-term environmental outcomesand socio-economic impacts, provides a robust framework to measure and enhance the success of sustainability initiatives in India.
Q. What strategies do you recommend for Indian companies to improve their ESG performance and reporting?
A. Indian companies can navigate the complexities of ESG integration, enhance their sustainability performance and build a reputation as responsible and forward-thinking businesses. Our tailored solutions and expert guidance ensure that your ESG initiatives deliver tangible benefits, driving long-term value for your organisation and stakeholders. I am often asked how Indian companies can improve their ESG performance and reporting.
Following are some strategies I recommend: Firstly, establish a robust ESG framework. Aligning with international standards such as GRI, BRSR and the UN-SDGs is crucial. This framework should outline clear ESG goals, metrics and reporting practices tailored to your specific industry. Secondly, integrate ESG into your corporate strategy. This means embedding ESG goals into business planning and decision-making processes. Thirdly, engage with stakeholders. Regular dialogue with employees, customers, suppliers, investorsand communities is essential. This helps identify expectations and ensures that ESG initiatives are relevant and impactful. Fourthly, enhance data collection and management. Leveraging digital tools such as AI and IoT can significantly improve data accuracy and transparency. You should also focus on material issues, i.e., prioritise ESG issues that are most relevant to your business and stakeholders. Apart from that, implementing training and capacity building for employees, leverage third-party certifications and audits and reporting transparently and regularly are a must.
Given the complexity of these tasks, ESG consulting services can be invaluable. At SG Analytics, we offer a comprehensive suite of services to help companies enhance their ESG performance and reporting. Our offerings include ESG research and consulting, materiality assessments, maturity assessments, gap analysis and peer benchmarking. We also develop ESG data management frameworks, assist with ESG strategy and target-setting, perform GHG calculations and conduct supply chain assessments. Additionally, we provide ESG training and workshops to ensure your team is well-equipped to handle sustainability challenges.
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