India Inc still far from looking at sustainability for value creation

While Environmental, Social, and Governance (ESG) has become a mandate and India Inc has been quick to fall in line, its sensitivity to the aspect has not evolved beyond compliance, say corporate observers.

True, more Indian corporates are reporting on ESG of their businesses now, than ever before, but it is largely driven by Securities and Exchanges Board of India’s(Sebi’s) push for such disclosures. In May 2021, Sebi issued a circular requiring the top 1,000 listed companies by market capitalisation to mandatorily file a Business Responsibility and Sustainability Report (BRSR) starting from FY 2022-23.

In response to this mandate, companies have started filing BRSR voluntarily sending such reporting up by 160 per cent, according to a study by ratings firm, CareEdge Research. It found that the number of companies putting up ESG data more than doubled to 330 in fiscal 2022 from a meagre 127 in fiscal 2020.

More corporates are expected to integrate sustainability in their businesses in 2023. However, there is time before they start looking at it from the value-creation lens, rather than treating it as a mere item on the checklist, observed corporate watchers.

For the last two years, companies responded to the sustainability requirements through the value preservation lens, said Sambitosh Mohapatra, Partner, ESG Leader, PwC India. “Perspective is still around value preservation, not losing customers due to lack of sustainability in their businesses,” he pointed out.

Only 5 to 10 per cent of the corporates currently find value in sustainability right from the beginning, said Anu Chaudhary, Partner & Global Head - ESG, Uniqus Consultech Inc, an ESG and accounting & reporting consulting firm. “It is at a very nascent stage. Corporates are currently just starting to learn about sustainability,” she underscored.

What to expect from 2023

Industry watchers expect a greater focus on sustainability as a business imperative in 2023.

“All forward-looking organisations will continue to prioritise the green line – measurement of the environmental efforts – as an enabler of driving growth in addition to top line (revenue) and bottom line (net profit),” said Sindhu Gangadharan, Senior Vice president & Managing Director, SAP Labs India and Head, SAP User Enablement.

As India moves towards achieving its net zero goals by 2070, corporates are beginning to also feel the pressure from their investors and stakeholders to build sustainable businesses.

Stakeholder inclusivity has today become a non-negotiable part of the idea of sustainability by way of employee and societal well-being, opportunity to all and protecting human capital, said Keshav Murugesh, Group CEO, WNS - a global business process management company.

“As important stakeholders including investors, customers and employees push companies to disclose their carbon emission disclosure, CEOs will perceive sustainability as a strategic priority and not just an afterthought,” Gangadharan echoed.

“In the long-term, a culture of co-creation in collaboration with the ecosystem must be built to engage all stakeholders as we advance towards achieving our goals,” added Murugesh.

Others betted more on regulations steering corporates towards sustainability in 2023.

“I see a major shift due to regulations and other things in the pipeline, including the cap on green-house emissions, carbon footprint, carbon tax and water regulation,” said Uniqus’ Chaudhary.

She also expected a lot of companies to gauge their current state of impact in terms of sustainability this year.

Challenges

“For several reasons, sustainability reforms take much work. These initiatives frequently cross many corporate divisions and activities, which makes measuring their impact more difficult. Additionally, the corporation rarely has complete control over all the levers of change,” said Dr Anjal Prakash, Research Director at Bharti Institute of Public Policy, Indian School of Business, and a lead author of the IPCC AR6 report.

Others pointed out a disconnect in the corporates’ understanding about sustainability.

“People think sustainability is different from businesses. When people say they have to choose between profitability and sustainability – this is because they have a myopic view,” said PwC’s Mohapatra.

He added that those sacrificing sustainability for short-term bottomline are doing a great disservice to all stakeholders.

Dr Prakash also pointed to the need for trained personnel to understand sustainability. “Only a few educational institutions in India have an inbuilt curriculum to train people to deal with sustainability issues. In future, there will be more demand for such person power, so bridging the capacity gap is another challenge businesses will face,” he noted.