ABSTRACT
In the face of escalating climate change concerns, environmental, social, and governance (ESG) 1 framework a term that was first coined in ‘Who Cares Wins’ report , have emerged as a pivotal strategy for companies to navigate the intricacies of contemporary corporate environment. This research paper delves into the intersection of climate change and ESG principles, highlighting the urgent need for companies to adopt ESG framework and practices that not only aligns businesses with environmental and social responsibilities but also foster a symbiotic relationship, yielding positive outcomes for businesses and contributing to improved financial performances and thereby creating a mutually ‘win win’ scenario , by taking action to support a more sustainable future .This paper mentions challenges faced in incorporating ESG practices and suggests ways to overcome them . The current scenario of Indian companies in adopting ESG frameworks and. through an extensive analysis of current corporate trends this paper brings to the light the undeniable advantages of embracing ESG frameworks in the context of climate change.
KEYWORDS
Climate change, ESG, financial benefits, sustainability, environment.
METHODOLOGY:
This research paper includes both quantitative and qualitative approaches as well as analytical methods for research. Quantitative Methodology: this research paper has data of major industrial disasters and their impact on environment, data of some top companies and how they benefited from applying ESG frameworks and considering the impact of ESG initiatives on company’s long term sustainability.
Qualitative Methodology: I have done an extensive review of case studies and reports related to ESG and climate change. Identified key themes, theories and best practices in ESG implementation.
Analytical Methodology: Analyzed how ESG factors contribute to resilience in the face of
climate change challenges and assessed the impact of ESG initiatives on the company’s
reputation, risk management. Examined the ethical and moral dimensions of ESG
implementation, considering its impact on society, the environment and future generations.
INTRODUCTION
Climate change refers to long term shifts in global or regional climate patterns , which is caused primarily by human activities releasing greenhouse gases into the atmosphere leading the Earth’s temperature to rise causing more frequent and severe heat waves , changing precipitation patterns leading to draught and floods, rising sea levels and acidification of oceans, loss of livelihoods, scarcity of food and water, emergence of new diseases ,economy crash etc .These changes have far reaching consequences foe ecosystem, biodiversity, water resources, agriculture and human societies ,. The 20 th century has reached such peaks of climate pollution, alteration and exploitation of environment that it is high time now to work towards mitigating these harsh effects caused by mankind or suffer through the hands of natural calamities that would befall.
As the world continues to combat with the consequences of climate change, Companies across the globe have started realizing the importance of ESG. In fact, according to a study, ESG CIO survey 2022, more than 53% of investors regard climate change as the most important affecting their investment decisions, up from 47% in the year 2021.
So what exactly is ESG, ESG is the acronym for Environmental, Social and Governance (ESG).
ESG is a reporting framework, and one of the critical, non-financial factors that are used for
assessing the company’s performance. It is about how an organization creates an impact on
environmental factors such as carbon footprint, water usage, waste management, air pollution, etc, social factors like diversity, human rights, safety at workplace, and the corporate governing factors such as shareholders rights, anti-corruption, transparency, diversity of board members, audits, internal controls, and other corporate and political contributions.
ESG criteria are used by investors to make informed decisions about where to allocate there
funds. Companies that perform well on ESG factors are often viewed as more sustainable and better positions for long time success. ESG considerations have gained prominence as investors and consumers increasingly recognize the importance of responsible and ethical business practices. In recent years, many organizations have started reporting on their ESG performances and integrating ESG considerations into their business practices to enhance their reputation , manage risks , and contribute positively to society and the environment. In further sections we will dive into more aspects of ESG.
IMPORTANCE OF ADHERING TO ESG STANDARDS
1. To Prevent Industrial disasters and environmental impact mitigation.
Globally in the past has suffered through many industrial disasters, to mention a few:
VISHAKHAPATNAM GAS LEAK: may 7, 2020
A gas leak from the LG Polymers plant in Visakhapatnam, which was operating without
environmental clearance for over two decades, killed 12 people and sickened hundreds on May 7 after inhaling the poisonous styrene monomer vapors that leaked from the LG Polymers plant in the village.
FUKUSHIMA DAAICHI NUCLEAR DISASTER
Date: 11 March 2011
After a 9.0 magnitude earthquake, centered 130km off of the eastern coast of Japan, the resulting 15-meter tsunami caused a failure in three nuclear power reactors at the Fukushima Daiichi Plant. The reactors were unable to run the cooling and water circulation functions. This led to high levels of radioactive releases. While there were no direct deaths due to radiation, over 100,000 people had to be evacuated as preventative measures. In addition, the disaster led to the largest amount of radioactive material discharged into the oceans - leading to a ban on fishing off of the coast of Fukushima, as the fish have been found toave high levels of radioactive cesium. This disaster could have been avoided if better safety measures and risk assessments were in place. Similar to the aftermath of Chernobyl, the international community responded by halting plans for nuclear energy plants and revisiting safety and environment related regulation.
BHOPAL GAS TRAGEDY
The Bhopal disaster was a chemical leak that occurred on December 3, 1984, in the Indian city of Bhopal. It killed an estimated 15,000 to 20,000 people. At the time, it was the worst industrial accident in history.
It occurred when about 45 tons of the gas methyl isocyanate escaped from a plant owned by a subsidiary of the U.S.-based Union Carbide Corporation. Investigations later established that substandard operating and safety procedures at the understaffed plant had led to the catastrophe.
In some cases, chemical accidents resulted from natural disasters—ammonia gas leaked at Oswal Chemicals and Fertilizers Ltd at Paradip, Odisha, in 1999 during a super cyclone, and an earthquake damaged phosphoric acid sludge containment at Bhuj, Gujarat, in 2001. 6 , Amazon/Australia/California forest fires Date: 2019-2020
All these terrifying incidents reminds the world importance of implying a strong ESG framework to protect the environment and to make sure such deadly incidents does not happen in future, because adhering to ESG principles contribute to reducing industrial disasters as it emphasizes sustainability, safety and responsible business conduct, which can lead to better risk management, improved operational efficiency, and enhanced corporate accountability.
2. Enhanced reputation, stakeholder trust and financial benefits :
ESG integration demonstrates commitment to responsible business practices, fostering goodwill among stakeholders, including customers, employees, and communities.
Companies participating in ESG efforts often gain a competitive advantage over business that don’t. For example, a 2022 survey of 1,062 U.S. residents by Green Print, a sustainability tools provider that''s now owned by PDI Technologies, found that 66% of the respondents would be willing to spend extra money to buy environmentally friendly products. Similarly, 70% of 400 IT professionals surveyed in 2022 by TechTargets Enterprise Strategy Group division said they think their company would pay more than a 5% price premium for IT products from vendors that have strong ESG practices.
The inclusion of ESG reporting in earnings reports or in separate disclosures is trending among businesses. Investors and lenders are becoming strongly drawn to organizations that invest in ESG and use ESG disclosures to illuminate on their sustainability efforts. A Gallup
study released in 2022 found that 48% of investors are interested in sustainable investing funds, while a Dow Jones survey of 200 investment professionals, also conducted in 2022, projected that ESG investments would more than double over the next three years.
Public concerns caused by the pandemic, climate change and misuse of natural resources are driving investors to change their perspective toward sustainable businesses and weed out the ones with outdated practices -- such as unfair wages, investments in fossil fuels, unsustainable agriculture methods and the manufacturing of non recyclable products. By offering a thorough insight of their practices, businesses engaged in ESG initiatives can influence investment decisions and enable investors to pick a company that provides a sustainable future with a minimal risk profile. Even small efforts toward sustainability -- such as going paperless, recycling or making energy-efficient upgrades -- can improve a business financial outcome and ROI. 7
3. Attraction and retention of talent:
Companies prioritizing ESG attract top talent , especially from younger generations who value ethical and purpose driven workplaces. Companies with ESG-informed business practices and policies attract top Gen Z talent as it signals to them that you are a purpose-driven, inclusive and progressive employer. Gen Z is more likely to consider employment at a company based on its ESG performance: 70% are more likely to work for a company with a strong green footprint. 86% of young talent also prefer to support or work for companies that care about the same issues as they do and 30% have left a business due to its lack of a corporate sustainability agenda. An ESG-led business also experiences increased levels of motivation and performance, which are crucial to retain your best employees. 2021 saw the beginning of the ‘Great Resignation’, where employees across the globe left their jobs in the aftermath of the COVID-19 pandemic. It gave many the opportunities to reconsider their career paths, evaluate their work conditions, and pursue a better work-life balance. Demonstrating that you are a company that understands these vital issues, with accompanying ESG-led policies, creates satisfied and happy employees who are more productive, stay at their organizations in the long term and are more likely to strive for better results.
ESG IN INDIA:
In the Paris Agreement of the United Nations Climate Change Conference in 2021, India’s Prime Minister committed to achieving net zero emissions by 2070. Accordingly, corporate entities must integrate ESG principles to safeguard the environment, the interests of various
stakeholders, and business sustainability as a whole.
The evolution of ESG laws and regulations is still at a nascent stage in India, where the focus is often on providing protections regarding the environment or workplace conditions without also incorporating the controls and disclosure that are a hallmark of contemporary ESG regulation.
The regulatory framework in India governing ESG issues is not codified under consolidated
legislation. Instead, a plethora of laws address ESG-related matters that apply to the operations of corporate entities in India (collectively, 'the ESG framework'), covering issues such as:
environmental protection (eg, the Environment Protection Act, 1986; the Water
(Prevention and Control of Pollution) Act, 1974);
employee benefits (eg, the Factories Act, 1948; shops and establishment laws; bonus and gratuity laws); and
corporate governance (eg, the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Companies Act, 2013; the Securities and
Exchange Board of India (SEBI) Act, 1992).
In India, ESG regulations have been gaining traction, driven by growing awareness of ESG risks and opportunities among investors, increasing focus on corporate sustainability, and the regulatory push towards responsible investment practices. The Securities and Exchange Board of India (SEBI), the regulator of the Indian securities market, has been actively promoting ESG investing in India through various initiatives.
In 2020, SEBI made a significant stride towards promoting ESG investing in India by mandating the top 1,000 listed companies to reveal their ESG-related information in their annual reports. This guidance note was updated in 2015 to include more detailed reporting requirements, such as reporting on water usage, energy consumption, and greenhouse gas emissions. Since then, SEBI has been periodically issuing circulars and guidelines on ESG disclosure, and many companies have started reporting on their ESG performance.
In 2012, SEBI issued a guidance note on ESG disclosure, which recommended that companies listed on Indian stock exchanges should disclose their ESG performance in their annual reports. This guidance note was updated in 2015 to include more detailed reporting requirements, such as reporting on water usage, energy consumption, and greenhouse gas emissions. Since then, SEBI has been periodically issuing circulars and guidelines on ESG disclosure, and many companies have started reporting on their ESG performance.
The Reserve Bank of India (RBI), the regulator of the Indian banking sector, has also been
promoting ESG investing in India. In 2020, the RBI issued a circular requiring bank to disclose their ESG-related information in their annual reports, including their policies on climate risk management, sustainable finance, and social responsibility. The circular also required banks to report on their financing of green and social projects.
TOP PERFORMING ESG COMPANIES IN INDIA:
1. Havells India and Godrej Consumer Products are among the 12 Indian companies that
were included in the Dow Jones Sustainability Index (DJSI) 2019, used for assessing
environmental, social and governance (ESG) performances. Havells eliminated the use
of trace Kr-85 radioactive isotope from the entire CMI (ceramic metal halide) lighting
range a few years back. No product of Havells now has radioactive components.
2. Godrej has successfully increased its renewable energy portfolio to 30 per cent,
achieved 37 per cent reduction in specific greenhouse gas emissions, diverted 99.5
per cent waste from landfill and reduced specific water consumption by 32 per cent.
3. UltraTech has been ranked among the top 10 companies, internationally, on Dow
Jones Sustainability Indices (DJSI) in the Construction Material Industry sector.
Since cement is a carbon-intensive industry, UltraTech has integrated low carbon
strategy into its business roadmap to address SDG 13 (climate change goal) based on
COP21 of the United Nations Framework Convention on Climate Change. Initiatives
like cooler upgradation, calciner modification, voltage variable frequency drive
installation.
4. Maruti Suzuki awards scholarships to meritorious students from underprivileged and
economically weaker communities. Maruti Suzuki has partnered with a number of
states to adopt several Industrial Training Institutes (ITIs) and also set up the first
Japan-India Institute for Manufacturing (JIM) in Gujarat.
5. P&G introduced Fairy Ocean Plastic bottles, which are made of 10 per cent ocean
plastic and 90 per cent post-consumer recycled plastic. The 100 per cent recyclable
bottles were launched to show what can be done to prevent plastic waste from
reaching the ocean.
These are just a few companies that implemented environment sustainable changes and saw a massive rise in share price value of their companies followed by greater demand, investment by customers and investors resulting in huge financial benefits, usually, retail investors, distributors of financial products or financial advisers focus on returns. But now, society wants to associate with businesses that are more responsible towards sustainability. This is already visible in the global lending and investing practices. Companies, despite generating high profits, could lose prominence or importance in the investment horizon if they have low ESG scores and thereby risk losing capital flows.
6. Cultural Factors: India has a diverse cultural landscape, and some traditional business
practices may not align with ESG principles. Companies may need to navigate these
cultural factors to implement ESG policies effectively.
WAY FORWARD:
1. To promote ESG adoption in India, there needs to be increased awareness among
companies, investors, and regulators about the importance of ESG factors for sustainable
and responsible investing.
2. The regulatory environment in India should be strengthened to promote greater ESG
compliance by companies. This could involve introducing more robust reporting
requirements, establishing clearer ESG standards, and enforcing regulations more
rigorously
3. Companies in India should provide more comprehensive and standardized disclosures on
ESG factors to enable investors to evaluate their ESG performance more effectively. 16
4. The rise of sustainability in decision making is very piecemeal in India Inc because of a
lack of stewardship, and fiduciary persuasion to improve the ESG performance. For ESG
to truly be embedded and practiced, all stakeholders have to work collaboratively and
create a conductive atmosphere for ESG in India. In addition to focusing in the near-term
on targeted actions such as decarbonization, a mindset shift is necessary to transform
from merely complying with creating value and risk reduction through structural
measures.
CONCLUSION:
In summary, this research paper comprehensively explores the critical relationship between climate change and ESG frameworks, highlighting the compelling reasons for companies to incorporate these principles into their business strategies. Through this integration, companies can navigate the challenges of climate change while creating a positive impact on society and their financial performance.
By referring to this research paper the reader gets an understanding about the hurdles faced by companies, organizations etc. and how can it be mitigated by the suggestions mentioned. This will help the society, the country, the world, and the earth as a whole.
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Reference
1 UN Environment Programe- Finance Initiative,”Who Cares Wins – The Global Compact Connecting Financial Markets to a Changing World”(2004) pg 8
2 Cleofe Maceda,”Climate change now matters the most to investors: survey”(ZAWYA, 9 November 2022)<
https://www.zawya.com/en/business/energy/climate-change-now-matters-the-most-to-investors-survey-jcl5zs78?amp=1> accessed 30 August 2023
3 ‘5 Benefits of ESG for Companies: What Is ESG and Why Is It Important?’(Vuram) <
https://www.vuram.com/blog/benefits-of-esg-for-companies/> accesses 30 August 2023
4 Sumit Bhattacharjee, ‘Visakhapatnam gas leak | How negligence and violations led to a deadly disaster’The Hindu (India, June 06, 2020
5 The Editors of Encyclopedia Britannica, ‘Bhopal disaster industrial accident, Bhopal, India [1984] (Encyclopedia Britannica, Aug 25, 2023 ) lt;https://www.britannica.com/event/Bhopal-disastergt; accessed 31 August2023
6 Apoorva, Shreeja Sen, ‘Industrial disasters: Is India better prepared than it was in 1984?’
mint(02 Dec 2014)
7 Kinza Yasar, ‘5 ESG benefits for businesses’
(TechTarget, 20 April 2023) < https://www.techtarget.com/whatis/feature/5-ESG-benefits-for-businesses> accessed
31 August 2023
8 Emma Wharton Love, ‘Is ESG the key to attracting the best Gen Z talent?’
(interaction) < https://www.interaction.uk.com/insight/articles/why-esg-is-key-for-gen-zrecruitment/> accessed 31 August 2023
9 Benjamin Lin, ‘India transforms its ESG landscape to be future-ready’THE TIMES OF INDIA (India, January 31, 2023)
10 MINTZ GROUP, ‘Explained | The rise of the ESG regulations’ The Hindu (India, March 12, 2023 )
11 Rupinder Malik , Aashit Shah and Abin Francis, ‘India: ESG Comparative Guide’
(mondaq, 05 June 2023) https://www.mondaq.com/india/corporatecommercial-law/1231978/esg-comparative-guide# accessed 31 August 2023
12 Dr. Mukesh Kwatra, ‘Rise of the ESG Regulations’ THE TIMES OF INDIA, (JUNE 6,2023)
13 Ajit R Sanhavi, ‘Top performing ESG companies in India how are their stocks faring’The Economic Times, (India,24 December,2020)
14 Dr Mukesh Kwatra, ‘Rise of the ESG Regulations’ The Times of India, (India,6 June , 2023)
15 By Wastebits, ‘9 KEY CHALLENGES COMPANIES FACE WHEN IMPLEMENTING ESG GOALS’(Wastebits,23 April 2003) < https://blog.wastebits.com/9-key-challenges-companies-face-when-implementing-esg-goals/# > accessed 3 September 2023
16 MINTZ GROUP, ‘Explained | The rise of the ESG regulations’ The Hindu (India, March 12, 2023 )
17 Rituraj Baruah, ‘Most Indian cos are struggling with ESG performance despite good show overall’Mint ( India, 19 May,2022)
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AUTHOR:
Diya Runwal
Research Intern
Stambh Organisation,India
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