Focus on ESG will decide companies’ long-term success

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Bombay : India Inc. realizes that environmental, social and governance (ESG) initiatives are an essential part of doing business. “In the long run, the focus on ESG will be the determining factor for success,” said Mukund Rajan, Chairman of ECube Investment Advisors.

“In the short term, it’s a different story. Take the example of the two-wheeler industry. A few years ago, Niti Aayog proposed to make it mandatory to convert all 2W to electricity by 2025, and huge resistance was seen. Today, market pressures are pushing two-wheeler manufacturers to offer a multitude of electric products. So it takes time and in the short term the industry may not be very supportive, but in the long term the acceptance comes,” he added.

According to Rishi Pardal, Managing Director and Managing Director of United Breweries Ltd, consumers play an important role in pushing companies to focus more on their ESG practices. “We see that as a business, consumers, especially Millennials and Gen Z, are asking brands the right questions. They aren’t sold on consuming but want to know what’s behind their choices. really represent the brands, how do they produce, what do they put on their packaging and do they treat their supply chain fairly and that’s a huge pressure on all of us in business and if you combine that with yesterday and today with the type of work that takes place in the investment world, and people taking the initiative to evaluate companies on these metrics, it has forced companies around the world to place the ESG at the heart of their agenda,” added Pardal.

Hetal Dalal, President and COO, Institutional Investor Advisory Services, said there was a need to create a holistic ecosystem to better focus on ESG. “There needs to be an ecosystem that rewards ESG performance. Defining responsibility for ESG at the executive level and building some of the targets into the CEO or senior management pay will drive the whole system towards ESG. What is rewarded will be measured and, therefore, will be done.”

“Even from a lender’s perspective, they also need to look at this and look at ESG compliance on the lending side. Regulators need to track data that will bring clarity. These are some of the ways to build an ecosystem around ESG initiatives,” she added.

Ankur Thadani, Partner, TPG Growth and RISE Fund, said that although the focus on ESG has increased significantly, there needs to be a global benchmark for it to work effectively. “The whole market is shifting towards a climate economy, but the risk is that there are far too many benchmarks, far too many ways to measure and report on ESG. It is very similar to financial accounting. In some years we will see companies publish annual reports with audited financial statements and an ESG report, and that will require a benchmark like GAAP,” Thadani added.

Indian regulators have taken a very proactive role in ensuring that ESG is taken seriously, said Shruti Rajan, Partner, Trilegal. “Today, the only thing stopping ESG from becoming a token or a marketing gimmick is the way regulators exercise oversight and oversight over the industry that disseminates the information and the industry that consumes information. We have done a fantastic job in India so far. Very soon we will have regulations on how ESG rating providers should be regulated, the draft is still in consultation form, but it is encouraging – principled, does not go into detail but sets out thematically the minimum standard of behavior the regulator expects.”

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