Investors & Indian Boards
May 07, 2019
ESG RisksDownload Article
Companies that successfully incorporate sustainability into their core business strategy are better positioned to lead in an evolving, complex and increasingly transparent marketplace. These companies are also more attractive to institutional investors and are likely to attract the bulk of capital investments going forward.
Barring a few exceptions in recent years, Indian companies have been notorious for poor ESG (Environmental, Social and Governance) / sustainability standards. Though fundamentally different, sustainability is often confused with corporate social responsibility (CSR) and viewed as a compliance matter rather than a performance management tool.
While CSR is a set of socially responsible activities that a company undertakes to convey its commitment to its stakeholders, ESG, predominantly used by investors and lenders, is the criteria upon which a company’s practices is evaluated. As FTI Consulting’s India Disclosure Index 2018 shows, only 51 percent of India’s top 100 listed companies provide sustainability reports that adhere to internationally recognised benchmarks.
Despite a Securities Exchange Board of India (SEBI) notification that mandates listed companies to submit Business Responsibility Reports (BRRs), ESG topics are still regarded by many boards as soft issues that require limited attention in lieu of the other short-term business challenges that a company is otherwise confronted with. This perception is quickly changing.
Globally, there is now irrefutable evidence to prove that a company’s bottom-line is directly linked to its sustainability strategy. All major institutional investors in the world such as Blackrock, Vanguard, Canadian Pension Plan and Fidelity have recognised this and are employing teams of ESG analysts that are trained to look for ESG red flags in an investee company as part of the due-diligence process or monitoring their portfolio post an investment.