Introduction to ESG compliances
ESG is an acronym for Environmental, Social, and Governance. It takes the holistic view that sustainability extends beyond just environmental issues. ESG compliances is a discipline that usually requires a combination of detailed regulatory knowledge and traditional risk management skills. To access these skills, ESG personnel may choose to join forces or cooperate with their respective counterparts in the compliance, legal, and risk departments.
ESG can be best explained as a framework that helps the stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria. It’s common yet reductive to think about ESG just in terms of environmental concerns. But ESG is so much bigger than that.
ESG covers business considerations ranging from carbon footprints and greenhouse gas emissions to remuneration and broader social issues like modern slavery.
Why ESG is important?
The concept of ESG lends credence to the fact that businesses are accountable to their stakeholders. This tenet was ingrained in National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business released in 2011 and incorporated in the Companies Act 2013. NVGs mandate a company and its directors to essay greater responsibility towards internal stakeholders like employees and external ones like the environment and community. NVGs were subjected to further upgrades and updated as the National Guidelines for Responsible Business Conduct (NGRBC) in 2019.
- Investors belonging to the millennial generation have been the driving force for the surge in ESG-driven investments
- Most such investors prioritize investing in companies that not only generate a substantial return on their investment, but also have clearly defined ESG goals.
- Banks and financial institutions are likely to consider Green Finance more and more, to ensure flow of funds into ESG-compatible projects like EVs, solar, etc. Bodies like the World Bank would focus on screening ESG credentials of countries while offering long-term loans and developmental assistance to them.
- ESG disclosures aid consumers in identifying responsible businesses, which not only concentrate on maximizing profits, but also on growing in a responsible manner. Businesses could also use their disclosures as a part of their marketing strategy to attract more consumers.
As ESG reporting is getting more and more global recognition and utmost importance among international investors. The Indian companies may consider conducting ESG due diligence and draw an ESG action plan, which would include obtainment of applicable licenses, drafting policies on anti-corruption, environment and social, etc., waste disposal process, maintaining a healthy environment for workers, fire safety/precautionary measures, etc. based on the findings of ESG due diligence.