BY: Avinash Gupta
The Securities and Exchange Board of Indiathe recent revision of Environmental, Socialand Governance (ESG) guidelines – to ensure India is in line with global compliance standards – was a historic moment for Indian businesses. The amended regulations require the top 1,000 companies in India by market capitalization to file a Corporate Responsibility and Sustainability Report (BRSR), along with their annual stock exchange filings, starting from the financial reporting year. 2023.
The BRSR requires companies to provide a number of key qualitative and quantitative information covering environmental, social and governance areas. Some of the key qualitative and/or quantitative information required by the BRSR include material environmental impacts, risks and concerns, median compensation and minimum wage,
return to work and retention rates, anti-corruption disciplinary sanctions involving directors and employees, and associated corrective actions, among others. The BRSR report will serve as a single, comprehensive source of information on non-financial sustainability measures for all business stakeholders.
This decision is important because it makes ESG initiatives an essential element in evaluating the overall performance of the company. In recent years, there has been an emphasis on ESG within the Indian business community. A recent PwC report found that the number of companies appointing Chief Sustainability Officers (CSOs) tripled between 2020 and 2021, reflecting this sense of urgency. However, in the absence of standardized and universally accepted guidelines in India, monitoring and verification of ESG performance is difficult. While there is no doubt that ESG reporting is becoming more structured and standardized, greenwashing by organizations – where companies project an ESG conscious image that is at odds with their actions – is a challenge and needs to be identified.
The solution to this problem lies in the data. For ESG standards to take effect and have a tangible impact on the way organizations conduct their business, data management and analytics can play a central role in helping to collect, verify and analyze the overall performance of an organization. company based on its ESG initiatives. While the lack of standardized regulatory guidelines in India is a barrier, it is also critical that organizations and regulators have the right data and tools to analyze the impact of ESG initiatives. Most companies lack a centralized collection, analysis and reporting capability ESG data. As investors increasingly focus on the ESG performance of a
organization, access to quality data and analysis of ESG initiatives becomes a competitive advantage.
Data management and analysis
Around the world, ESG has become a mainstream conversation on corporate boardrooms and, more importantly, in the allocation of capital. According to a Dun & Bradstreet survey highlighting key compliance and procurement challenges, 51% of respondents said they needed more data to verify entities and 43% said it was difficult to identify the application of ESG guidelines in the client’s due diligence processes. Inefficient data
use and management are at the heart of these challenges.
Due to the lack of a standard process for ESG reporting, companies are sitting on large volumes of unorganized and unstructured data – from business intelligence reports to public information sources such as social media and new cover. This massive amount of data makes it extremely difficult to make informed decisions to create impact. Manually filtering this data can lead to inconsistent results. Therefore, data management plays a vital role in the process, helping companies break down silos
and make essential data accessible.
Many Indian companies still rely on manual processes to collect internal ESG data such as water consumption, carbon emissions, workforce demographics, etc., and as a result, these data assets are often housed in databases in different formats. Digitizing these processes and products will save time and money, thereby accelerating the speed of decision making. A data management solution can facilitate the structuring of data, provide a clear view of all business relationships and allow companies to align their ESG data to achieve their ESG objectives. Structured data will also help build a universal ESG framework, which all stakeholders will find beneficial.
Insights gained from the data management process will further feed into advanced analytics which can then provide data-driven predictions and recommendations that improve as the volume of data increases. Insights from ESG data can help organizations in the following ways:-
1. ESG data can highlight the efficient use of resources and profitability adopted by a company by investing in improved and efficient equipment. For example, various companies supplying data centers have prioritized water and energy efficiency by placing data centers under water to avoid cooling costs, or choosing cooling by air in areas of water stress.
2. Reputational risk should be one of the main focus areas of “future-ready” companies. Today, companies recognize that their value is judged not only by their tangible assets, but also on other intangible factors such as the impact they
have on the environment and the societies in which they operate. In this way, ESG data is a valuable risk management tool, highlighting a company’s agility and adaptability.
3. ESG data intelligence can also open up new avenues for capital generation. As the government becomes aware of the impact of climate change and moves towards its vision of becoming carbon neutral by 2070, investors have become more aware of investing in companies that not only commit to sustainability, but who also respect their commitments. Globally, some large corporations have issued green and sustainability bonds to raise capital for their sustainability initiatives.
4.Organizations today consider ESG performance as a decisive factor in the development of their future business partnerships. Breaking down specific ESG risks by category helps companies make the connection between ESG and business partner performance.
5. Additionally, as Gen Z makes up a growing percentage of the workforce, many research articles have highlighted the relevance of a company’s ESG credentials to attracting and retaining diverse talent.
An ideal ESG report for an organization should cover all three ESG pillars in terms of initiatives and objectives. It should also show how the company’s efforts are aligned with the United Nations Sustainable Development Goals, detailing key ESG initiatives, peer benchmarking, and a focus on local regulatory guidelines.
In a nutshell, it is no longer a question of whether a company needs an ESG framework. It has become a necessity, which can make or break a business. The ESG readiness of companies will determine whether they will survive or thrive in the near future. With the right application of data science, along with next-generation technologies, ESG initiatives have the potential to unlock game-changing benefits.
About the Author: Avinash Gupta, Managing Director and CEO – India, Dun & Bradstreet.
Disclaimer: The opinions expressed are those of the authors alone and ETCFO.com does not necessarily subscribe to it. ETCFO.com will not be responsible for any damage caused to any person/organization directly or indirectly.