So, let's imagine that the school's ESG report card has three sections: environmental, social, and governance. The environmental section evaluates how the school impacts the environment, like how much energy it uses, how much trash it produces, and how much water it conserves. The social section evaluates how the school treats its employees and students, like how diverse the student body is, how inclusive the school culture is, and how well students and teachers are supported. The governance section evaluates how well the school is managed and whether it follows ethical practices. This can include things like whether the school has an anti-bullying policy, whether the principal is transparent about school finances, and whether the school has a code of conduct that is followed by all staff and students. So, when people look at a company's ESG report card, they can see how the company performs in each of these areas. Then, they can decide whether they want to support the company by buying its products or services or stock.
ORIGIN OF ESG
The concept of ESG can be traced back to the 1960s, when socially responsible investing (SRI) emerged as a way for investors to consider environmental and social factors when making investment decisions. The idea behind SRI was that companies that did well in these areas would also do well financially. Over time, the concept evolved into what is now known as ESG, which takes a more holistic approach to evaluating companies. Today, many investors, consumers, and employees consider ESG factors when making decisions about which companies to support.
ESG REPORTING IN 2023
The importance of ESG reporting is growing rapidly, especially in the year 2023. Companies are under increasing pressure from investors, consumers, and employees to be transparent about their ESG performance. There are several reasons for this. First, people are becoming more aware of the environmental and social impacts of companies, and they want to support businesses that are making a positive difference. Second, there is a growing body of research that shows that companies with strong ESG practices tend to perform better financially.
There is this important concept called as GREENWASHING. Greenwashing is when a company makes misleading or false claims about its ESG performance in order to appear more sustainable than it actually is. This can lead to inaccurate ESG reports and can make it difficult for investors and consumers to make informed decisions. There are several reasons why companies engage in greenwashing. Sometimes it's a deliberate attempt to mislead, but it can also be the result of a lack of understanding or inadequate resources for accurate ESG reporting.
Let's take the example of Volkswagen. In 2015, the company was caught using software to cheat on emissions tests, which led to a huge scandal. The company had been claiming to have low emissions, but it was actually emitting much more pollution than it was reporting. This is an example of how greenwashing can lead to serious consequences for a company. It damaged Volkswagen's reputation and led to significant financial losses. Many other companies have been accused of greenwashing as well, such as Coca-Cola, BP, and Nike.
CLIMATE IMPACT
ESG reporting is playing an increasingly important role in the fight against climate change. This is because it provides a way for companies to measure and report on their carbon emissions, as well as their plans to reduce those emissions. Many companies have made public commitments to become "carbon neutral" or "net zero" by certain dates, and they are using ESG reporting to track their progress towards those goals. Investors and consumers are using this information to hold companies accountable for their actions and to make informed decisions about which companies to support. Let's take a critical look at the current state of ESG reporting and climate change. While ESG reporting is definitely a step in the right direction, there are some limitations to consider. First, there is no standardised framework for ESG reporting, so companies can vary widely in how they measure and report on their ESG performance. This can make it difficult for investors and consumers to compare companies. Second, some companies may "game" the system by cherry-picking which metrics to report or by setting overly ambitious goals that they have no real intention of meeting.
ESG IN INDIA
Let's start with the business responsibility and sustainability reporting, or BRSR, that was introduced by SEBI in July of 2023. This framework requires certain listed companies in India to disclose a wide range of ESG metrics, including their greenhouse gas emissions, water and energy usage, diversity and inclusion policies, and community engagement initiatives. This is a significant step forward in terms of increasing transparency and accountability around ESG issues in India. However, there are some challenges with this framework. For example, the requirements are quite detailed and complex, which could be difficult for some companies to comply with.
The two main stock exchanges in India, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), have played a significant role in encouraging companies to adopt ESG reporting. For example, they have both launched sustainability indices, which track the ESG performance of listed companies. As stated above, SEBI has also been instrumental in developing the BRSR framework and in promoting awareness of ESG issues among Indian companies. Overall, it's clear that there is a strong push for improved ESG disclosure and transparency in India.
INDIA’s TOP FIVE
The top five ESG-performing companies in India are ITC Limited, Mahindra & Mahindra, Wipro, HDFC Bank, and Adani Green Energy Limited. ITC Limited is known for its strong environmental practices, including water conservation and waste management. Mahindra & Mahindra is known for its efforts in corporate social responsibility and employee welfare. Wipro is recognized for its commitment to sustainability and community engagement. HDFC Bank has made significant strides in promoting diversity and inclusion, and Adani Green Energy Limited is a leader in renewable energy.
I'll give you a few examples of the most commonly used metrics. The first is greenhouse gas emissions, which includes the amount of carbon dioxide and other greenhouse gases a company emits. This is usually measured in tons of carbon dioxide equivalent (CO2e). Another important metric is water use, which tracks how much water a company uses and how it manages water resources. There is also energy use, which measures how much energy a company consumes. In addition, there are metrics for waste management, which includes the amount of waste a company generates and how it disposes of it. Under the environmental category, there are many subcategories. Some examples include air emissions, water use, water quality, solid waste management, biodiversity, land use, energy consumption, climate change, environmental management, and more. Now, let's discuss social metrics. Social metrics often include labor practices, human rights, employee health and safety, gender diversity, community engagement, product safety and more. Finally, governance metrics measure a company's policies and procedures around topics like ethics, transparency, and management.
ESG FOR INVESTORS
ESG reporting is becoming increasingly important for investors because it helps them understand the risks and opportunities associated with a company. This is because ESG factors can have a significant impact on a company's long-term performance. For example, if a company has poor labor practices, this could lead to strikes or boycotts, which would negatively affect the company's stock price. Or, if a company is heavily reliant on fossil fuels, it might be at risk if stricter environmental regulations are put in place.
One way that investors utilize ESG reporting is by using it to screen potential investments. For example, an investor might use ESG data to identify companies that align with their values or that are well-positioned to capitalize on trends like the transition to a low-carbon economy. In addition, many large institutional investors, like pension funds, are starting to use ESG criteria to guide their investment decisions. This is because they want to ensure that their investments are not only profitable, but also sustainable and responsible.
Have you heard about the rise of "green bonds" in India. Green bonds are bonds that are used to fund projects that have a positive environmental or climate impact. They have been growing in popularity in India in recent years, and they're an example of how ESG can be used to finance projects that have a positive impact. One example is the Indian Renewable Energy Development Agency (IREDA), which is a government-owned institution that issues green bonds. They've issued over $3 billion in green bonds to date, which have been used to fund solar and wind energy projects in India.
To conclude, ESG reporting is becoming increasingly important for companies in India, as it can help them to attract investment, manage risk, and improve their environmental and social impact. While there are some challenges in implementing ESG reporting, there are also many opportunities for companies to make positive changes. India has a unique opportunity to become a global leader in ESG reporting, and there are many success stories that demonstrate the benefits of taking a proactive approach to sustainability. With continued efforts, India can create a more sustainable and prosperous future for its people and the planet.
No comments:
Post a Comment