The Future of ESG Requirements: And what should Indian companies do now to get ready?

21 June, 2023

ESG factors have become central to long-term financial stability and success for companies globally. In India, business leaders are recognizing the importance of ESG in key business decisions. As recent findings in KPMG’s India’s CEO Outlook 2022 Report reveal:

●   77% of Indian CEOs saw increased stakeholder demand for ESG reporting and transparency
●   62% expected accelerated stakeholder scrutiny on ESG
●   55% believed the public expects businesses to bridge the gaps in societal challenges

Increased ESG awareness has led to influencing massive megatrends in various sectors. They include:

●   Integrating ESG in business operations
●   Complying with ESG regulations
●   Meeting changing consumer preferences
●   Responding effectively to climate change and
●   Promoting diversity and equality

Progressing towards a global standard for ESG reporting
While corporates are wanting to keep up with the ESG reporting trends, some sectors are ahead of others in identifying their preferred frameworks.

Global ESG reporting practices are still evolving and are yet to mature. ESG reporting frameworks are also being consolidated to create a seamless reporting landscape with specific frameworks for each niche.

Different frameworks have updated themselves with the intention of helping companies achieve maximum compliance under each of them and reduce the reporting burden. For example, SASB has reviewed its standards to tune in with TCFD’s recommendations. GRI has updated its disclosure standards to help companies align their sustainability disclosures with the UN’s SDGs, thus further aligning itself with the PRI. IFRS and GRI have collaborated to have their standard-setting boards coordinate their work programmes and standard-setting activities.

In India, SEBI has introduced the Business Responsibility and Sustainability Reporting (BRSR) framework to standardize ESG reporting for Indian companies. Following SEBI’s push to promote ESG disclosures, ESG reporting in India improved by nearly 160% between 2020 and 2022. Many companies, however, are yet to begin their journey towards a more sustainable future and here is why they should start considering the same:

4 reasons why companies need to act today for a better tomorrow
For companies hesitant to commit fully to ESG best practices, here are 4 compelling reasons to begin this journey right away:

●   Rising relevance of ESG information: Incorporating ESG practices is no longer optional but necessary because stakeholders are increasingly prioritizing ESG data to make crucial decisions based on competitiveness
●  Growing emphasis on ESG data points: For increased clarity and transparency companies now have to report on an increased number of sustainability-oriented data points, making it necessary to reorganize existing processes and reporting systems
●   Increased frequency of ESG reporting: With the growing demand for real-time insights into ESG data from internal and external stakeholders, companies must quickly adapt to meet stakeholder expectations and comply
●    Greater focus on data quality: The growing significance of ESG information also calls for a reliable audit process, because data quality is crucial for accurate and reliable reporting and hence better control

A Roadmap to help set Indian companies up for ESG Success
For Indian companies keen on successfully keeping up with the future of ESG, it is essential to make data-driven decisions that facilitate easier achievement of ESG goals. The key areas to focus on include:

●  A reliable foundation of data: This helps to effectively measure the ESG progress and to build a flexible format to meet current and future reporting requirements
●   Seamless data collection and storage: This is necessary to ensure that the ESG data is easily auditable and helps end-to-end traceability, right through to the data source
●  Structured data: A better structure helps ESG reporting to adapt to organizational hierarchy and geographical changes as the organization expands
●    Data automation: Automation helps to streamline data collection, analysis and reporting processes, and enhance the accuracy and efficiency of ESG initiatives
●   Outsourcing specific functions: This can offload the companies of the data capturing challenges and help ease the reporting and decision-making journey

Three Levels of ESG Ambition
When a company implements robust ESG data collection and reporting processes, it is better poised to progress along the ESG maturity curve — which spans three ambition levels, according to McKinsey. Companies can then choose to target any of these levels basis their point in the journey and business requirements. These include:

●   Level 1: Minimum practice
Companies that are in the nascent stages of implementing ESG best practices can begin here. Their initiatives are limited to risk-mitigation measures like:

-   Handling external risk factors and vulnerabilities
-   Meeting mandatory and baseline ESG reporting standards
-   Reacting to ESG trends affecting their industry

●   Level 2: Common practice
The companies that have cemented their minimum practices inside the core business are equipped to make substantive efforts outside of the core business:

-   Aiming to surpass industry averages by complying with voluntary ESG benchmarks
-   Creating a comprehensive ESG policy to meet stakeholder expectations
-   Excelling in specific ESG goals like contingency planning, inclusive HR practices, running high-impact philanthropic programs, and engaging with stakeholders on what matters

●   Level 3: ‘Next level’ practice
For companies in the stage to fully integrate ESG into complete strategy and operations, this is the most ambitious and extended level that they can target. Some common measures taken by these companies are:

-   Using ESG as a differentiator and integrating it into resource and capital allocation
-   Leading innovation with ESG to match the evolving market and consumer choices and needs
-   Committing to ESG disclosures spanning end-to-end business operations
-   Improving sustainability outcomes internally and externally

Steady progress in the right direction today can help Indian companies successfully make the transition from merely managing ESG risks to creating a positive environmental and social impact. This must be balanced with support from industry experts and policymakers — who play a pivotal role in equipping Indian industries to meet sustainability requirements on a macro scale.

To play their role effectively, these experts and stakeholders need to engage in meaningful dialogue and discussions, address existing challenges and ideate ESG regulations. The ongoing 3rd ESG & Sustainability Strategy India Summit 2023 — organized by Inventicon — aims to facilitate this agenda.

Treeni is committed to contributing to India’s progress on the sustainability maturity curve and is a gold sponsor at the event to share our points of view and exchange notes with our peers. With the convergence of Industries and an exchange of ideas, Treeni hopes this could help transform the ESG landscape in India and further accelerate the path to ESG adoption.

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