ESG is just the tip of the iceberg
There are continuous parallels being drawn between the unforeseen risks of a pandemic and the climate crisis, with both impacting the global economy substantially. This has made many investors and policymakers realise a greater need to accelerate investments and progress on businesses which prioritise ESG.
As investors increasingly apply these non-financial risk factors to identify material opportunities within their portfolios, ESG is becoming more of a benchmark. As the public becomes more aware of the responsibilities and duties of enterprises towards the society, environment and ecosystem as a whole ESG is getting highly competitive and debated.
For most companies, ESG is simply a risk management strategy. Enterprises need to go above and beyond the call of duty to take responsibility for the environment.
Companies are taking that initial baby step in the right direction, but the question remains where do enterprises go from here. Agreeing on a common definition of what “sustainable” actually means is proving difficult enough. This should be no surprise. The answer is not as simple as many would like it to be. In reality, there are three distinct levels of environmental responsibility that can be measured: legal compliance, performance relative to peers, and performance relative to theoretical opportunities.
Legal compliance refers to adhering with local laws and regulations. When it comes to the environment, this takes place in the physical world in which a business operates. Environmental laws generally require businesses to achieve a certain level of non-waste management in their production processes, energy generation, transportation and waste disposal. Carbon-neutrality, climate change and optimum utilization of renewable energy are some of the measures today that are truly making an impact.
Accordingly, only a small portion of environmental issues can be tacked on to compliance scores because most environmental issues are transnational and therefore cannot be judged entirely on local standards. However, for legal compliance purposes, companies can still implement sustainable practices within their own markets.
Performance relative to peers is when an enterprise’s performance relative to its peers (e.g. other companies in the same industry) is assessed. This kind of assessment has been used for compliance reporting in areas such as corporate governance, where performance relative to peers can be compared across a sector. This practice is not used widely for environmental issues because there are few measures that are comparable across industries and countries, although one example of a comparative measure that has been implemented is the Corporate Average Fuel Economy (CAFE) standard which was introduced by the US government in 1975 to encourage auto manufacturers to produce more fuel.
The world has changed and with it, so have the needs of businesses. Focusing on only profit margins will not be enough to sustain the future of an enterprise.
It was nearly two decades ago when we first heard the term ‘sustainability’ in relation to companies, and now it’s used more liberally. However, today ESG is much more than just sustainability and going green. Today ESG is quite more and promises more improvement. Today’s ESG encapsulates these key highlights which every enterprise should adhere to as their bible.
– Mental health and well-being: Mental health, depression, social well-being is still considered a taboo in many circles and cultures. Alternatively, in a recent PRI (Principles for Responsible Investment) meet professionals from different verticals, industries invested in enterprises which had sound balance, motivation and capabilities to drive certain aspects of business, social-life and their mental health. It’s now more than ever imperative that well-being of employees is not merely measured in terms of a decent work-life balance, but overall well-being of employees including their mental health.
– Diversity, inclusion and solidarity: While diversity, inclusion, multi-cultured workplaces are well discussed and always remain in trend, enterprises need to focus more acutely on bringing together people from diverse backgrounds, cultures, orientations etc. As an enterprise a wide variety of opinions only help in an informed and superior decision making about various aspects of business and clients.
– Industrialisation/ Rise in disruptive technology and continuous innovation: The pandemic has given us several takeaways, one more important so than others. To continuously innovate. With such unequivocal focus on the promise and potential of innovation, companies need to welcome change, technology, disruption and innovate themselves to stay relevant. Innovation is not just a side note on company’s website. Enterprises need to invest in good human resources, Research and development labs and equipment and should focus on numerous ways to better the value offerings for their clients and business partners.
– Cross Industry- Pollination: More often than not employees get comfortable in a job role and this tends to limit their creativity and leads to complacency. The need of the hour is to drive employees out of their comfort zones to work, synergize with teams which puts them out of their comfort zone. Cross pollination is one of the best ways to instil team building, create innovation and dynamics, solve complex multi-dimensional problems and create an ecosystem where people are open to change, testing their capabilities and venturing into uncharted territories. While many enterprises have been pursuing measures in bits and pieces to achieve this, it takes the right attitude, approach and motivation from the senior management to seamlessly implement this trend
While ESG expertise, consultants pride themselves on valuing a company on its rich and diverse heritage, sustainable and carbon-neutrality efforts, its ability to be profitable while being sustainable, the dialogue has become much more holistic that sustainability, profitability. The only way for enterprises is to step up and shoulder their share of responsibilities, not just towards the environment, investors, society and government but also their employees, brand partners and the consumers who show trust in them.
Views of the author are personal and do not necessarily represent the website’s views.
Ankit Saraiya is the Director at Techno Electric and Engineering Company Limited.(TEECL) and oversees the Data Centre Business at TEECL. His main focus is to develop an ultra-scalable, high- density Data centre across various locations in India, including the current Project in Chennai. He holds a bachelor’s degree in Science (Corporate Finance and Accounting) with a minor in Computer Information Systems (CIS) from Bentley University in Waltham, Massachusetts, US. He has sound financial and commercial knowledge, along with an experience of over nine years in the related field.
This column appears in the March 2022 edition of our quarterly magazine. To grab your own copy, click here
