ESG or Environmental, Social and Governance has been gaining prominence with global conglomerates in the past decade. However, Indian firms were procrastinating on ESG reporting. Although it goes hand in hand with the principles of responsible business and corporate social responsibility, the perception of ESG was that of a prestige product. Such notions are changing rapidly in the face of the global pandemic.
Investors in India are beginning to understand just how lucrative ESG investing is. India is one of the countries that signed on the dotted line of the Paris Treaty on climate change. In fact, the existing government has made a commitment to generating 40% of the electricity required for consumption through renewable and planet-friendly energy sources rather than harmful ones like coal. The government-owned power company NTPC has already announced that it has stopped land acquisition for new coal-based power plants. As a responsible company, NTPC plans to generate 30% of all its power through clean energy sources by the year 2030. With public sector enterprises like NMDC and NTPC laying down stringent ESG policies and setting emissions goals, the conversation around these concepts is more noticeable in the corporate circles.
The Reserve Bank of India (RBI) has explicitly talked about the factors and perception of ESG in its annual report. There is no standard global framework for these policies, leaving the floor open for businesses to manage financial risks from climate change and natural disasters any which way they want. The RBI believes a universal framework would streamline ESG reporting. Yet organizations like Godrej, Hindustan Unilever, ICICI Bank and Mahindra & Mahindra have already been devising ESG strategies at the highest levels of their leadership. After the pandemic, more Indian players are following suit.
ESG funds have outperformed others during the economic crisis brought about in the COVID-19 era. The younger breed of investors belonging to the post-millennial generation are more environmentally conscious. They not only look at the returns on investment but also on the value that the organization generates for communities and the planet, so the perception of ESG is changing from optional to necessary. Add to that the investors with a philanthropic and activist streak growing in numbers by the day in the COVID-19 era, and the perception of ESG is wholly different.