ESG Inc: It's now profitable to look beyond profits

As ESG (environmental, social and governance) investing picks up globally and the new business responsibility and sustainability reporting (BRSR) norms in India become compulsory for the top 1,000 listed companies by market capitalisation, ESG has become a key determinant of several key business decisions. Expectations from stakeholders have increased regarding companies’ ESG performance.

While adopting the ESG framework, companies have maximum focus on environmental issues, then social issues and lastly governance aspects. According to the Morningstar Sustainalytics Corporate ESG Survey Report 2022, carbon emissions from operations; emissions, effluents and waste; and carbon emissions from products and services were the top three ESG issues that the companies intended to prioritise in the coming year.

As a part of the BRSR, companies need to disclose the total electricity and fuel consumption from non-renewable and renewable sources, total water withdrawal by source, energy and water intensity per rupee of turnover, a mechanism for zero-liquid discharge, details of greenhouse gas emissions and their intensity, Scope 3 emissions, total waste generated, and total waste recovered through various means.

Consequently, companies are looking at reducing their carbon footprint and increasing their energy efficiency through the use of green buildings, becoming plastic-waste positive, building energy-efficient infrastructure, and making facilities waste-neutral. Ambuja Cements, for instance, saves around 70 million litres of water at construction sites through concrete mix proportions, modular curing and rainwater harvesting. The share of renewable energy in Marico’s operations stood at 70% for FY22.

This is also the reason companies are adopting energy-efficient smart manufacturing that involves the use of artificial intelligence (AI) and machine learning as well as 3D printing. These manufacturing innovations offer companies the capability to accurately measure and report ESG metrics.

Among the social norms, companies need to disclose aspects such as the amount spent and work done on corporate social responsibility (CSR), workforce diversity and accessibility, training and health and safety of the employees, wage gaps, minimum wages, CEO’s pay when compared to median remuneration and the upholding of human rights. Given that women’s representation in the workforce in Indian companies is low with an existing wage gap, companies are putting diversity on the business agenda. Similarly, there has been an increased focus on training and the well-being of employees leading to an improvement in numbers. For example, there was a 37% increase in Hero MotoCorp’s female staff strength in FY22 to 2,079 from 1,520. The number of specially-abled employees rose to 98 from 66.

On governance norms, disclosures related to board composition, diversity, age, independence and training of directors have pushed boards to hire more independent members, women and expats. For instance, Tech Mahindra’s board exhibits a diversity of gender (seven men, three women), independence (six of the 10 directors are independent), age (two directors below 50), tenure (average tenure of 8.2 years) and nationality (20% directors are foreigners).