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ESG Shapes Future Business

Impact of ESG on business

Over the past couple of years, India’s regulatory landscape has witnessed a sweeping transformation. The Securities and Exchange Board of India (SEBI) has taken a significant step by mandating that listed companies incorporate Business Responsibility and Sustainability Reporting (BRSR) in their annual reports, starting from April 1, 2022. This action underscores their commitment to implementing Environmental, Social, and Governance (ESG) programs. Companies are now not only required to identify ESG risks but also elaborate on their strategies to mitigate these risks and their contingency plans in case those risks materialize.

A Global phenomenon

In September 2020, the World Economic Forum and the International Business Council (IBC) encouraged approximately 130 major global companies within the IBC to adopt ESG standards for their 2021 reporting. This initiative reaffirmed the significance of ESG planning for organizations, particularly in light of the changing conversation around ESG practices.

While significant strides have been made in recent years regarding ESG reporting, with companies, investors, and regulators recognizing the importance of sustainability and responsible business practices, it is imperative that ESG reporting remains not just a formality, but a meaningful and actionable tool for stakeholders.

In today’s data-driven world, where information exchange is constant, data integrity becomes paramount. This has exposed vulnerabilities in organizations’ code of ethics and whistleblowing policies that malicious actors can exploit. Ensuring compliance with regulatory and industry standards is essential to build trust in the capital markets. The evolving ESG landscape provides an opportunity for businesses to evaluate their data protection and data breach control measures.

A crucial aspect for organizations is to have a robust crisis management response plan in place to handle unforeseen events with tact. Given the increasing emphasis on ESG by governments worldwide, organizations failing to adopt optimal measures and policies for responsible environmental practices may face not only reputational damage but also monetary penalties. Since ESG performance has now become a metric for evaluating financial performance, falling short in this aspect can leave company boards vulnerable to allegations of greenwashing, which can significantly impact their ability to attract potential investors. Therefore, the Social (S) and Governance (G) factors of the ESG framework are poised to gain even more significance, as they offer insights into an organization’s overall performance and long-term success.

A key metric of resilience

The importance of strong governance practices cannot be overstated, particularly in the current environment of heightened risks and uncertainties. Organizations with robust governance practices, including independent board oversight, transparent decision-making processes, and effective risk management, are better positioned to build trust among stakeholders and ensure long-term sustainability. According to a recent EY study, 90% of international investors consider a company’s ESG performance as a key metric for assessing long-term business resilience. It is evident that ESG compliance has ascended on organizations’ list of priorities at the board level. We find ourselves at the juncture of ethics and ESG, and it is crucial for organizations to ensure that their ESG reporting mechanism operates like a well-oiled machine. ESG, as an integral part of corporate governance and the code of ethics, should be viewed cohesively, communicating clearly that it is an integral part of the organization’s proactive business strategies.

The Social responsibility angle

Shifting to the social factor of ESG, an organization’s competence and success are intrinsically linked to its employees. The workforce is an organization’s most valuable asset. Effective talent management has been a persistent challenge for most corporations, as evidenced by the phenomenon dubbed the “Great Resignation.” Organizations that prioritize employee well-being and make diversity and inclusion a core element of their firm’s agenda are more likely to have a content and productive workforce.

While substantial efforts are being made to embed ESG into an organization’s foundational framework, the social and governance factors are expected to gain even greater significance in the years ahead. As organizations strive to build trust among stakeholders and contribute to a more sustainable and equitable future, this momentum is likely to continue. With organizations fully committed to advancing this agenda, I hold an optimistic view that the future of business will be shaped by strong social and governance practices.

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