Environment, Social and Governance (ESG) is the new barometer to evaluate corporate behaviour and determine a company’s future performance. Today a company’s response to climate change, efficient water management, effective health and safety policies, responsible supply chains, transparent business practices and disclosures are just some of the few parameters on the basis of which their ESG scores are calculated. ESG has only now begun to play a pivotal role in the decision making of governments, regulators, investors, lenders, and corporates. Organizations across the globe are not just concerned about generating financial returns anymore but are also keen on finding ways to improve the ESG alignment of their investments and have a positive impact on the environment and society.
ESG could similarly redefine corporate India’s approach to risk management for sustainable value creation. Although the concept is still nascent, ESG investment has been steadily been growing in India. The growth has picked up over the last few years and according to industry studies According to Morningstar data being referred by Business World1, ESG funds’ inflows increased by 76 per cent to INR3,686 crore in FY21, with six exclusively ESG-focused funds launched in the country in the same period1. The COVID-19 pandemic has led to a shift in consumer preferences, with people willing to pay more for healthier, safer, more ESG-focused products. Indian consumers and employees are also wanting businesses to invest in making sustainable improvements to the environment and society.
So, what are the various ways in which consumer companies can incorporate ESG measures within their business models?
Numerous Indian consumer firms have undertaken measures in order to comply with ESG standards and have altered various business processes to the same effect. One of India’s best performing consumer goods firms diverts 99.5 per cent of waste from landfills, increased its renewable energy portfolio to over 30 per cent and decreased water consumption and greenhouse gas emissions by 32 per cent and 37 per cent respectively. Another company which is a leading electrical equipment company eliminated the use of all radioactive components. Another consumer goods company launched 100 per cent recyclable bottles made of 90 per cent of post-consumer recycled plastic and 10 per cent of ocean plastic.
The safety and well-being of employees, both physically and mentally, has become crucial, with social-distancing measures, challenges of working from home, issues related to daily wage workers, mental health etc., bringing new obstacles for the industry. Hence it would be prudent for consumer companies to take necessary steps to alleviate these issues, which go hand in hand with ESG.
Another concept which has become extremely popular today is thrifting. The concept of purchasing second-hand clothing embraces the idea of sustainability and is currently being embraced in a big way in countries like USA and Canada. But over the past year or so, especially due to the lockdowns and inability to shop at retail stores, it has also started drawing attention from India’s urban youth. Entrepreneurs in the country that are engaged with thrifting on social media platforms, are urging their peers to buy thrifted clothes in order to reduce garment wastage. New material need not be brought in, no additional manufacturing takes place, no labour is required, no carbon is used up in transportation and no money is spent on marketing. And above all this, thrifted clothes are available at extremely affordable prices! Unquestionably, this trend has the potential to take the entire nation by storm.
To end , ESG has become an important facet in corporate decision making and has gradually become a center point of stakeholder dialogue. The magnitude with which the pandemic struck the nation has only further highlighted the importance for firms to build sustainable and efficient business models. This means companies with very lean and responsible supply chains will need to re-assess alternative and ethical sources. While this may increase the cost of operations, it will prepare them to respond better. COVID-19, in all its volatility and stress, has brought with it an opportunity to take a hard look at the entire consumer and retail supply chain, so as to meet tomorrow’s needs. This just further epitomizes the fact that the future is just not about profitability, ‘purpose’ has a significant say.