Over the past two years, the Indian regulatory landscape has undergone a major overhaul. The implementation of the Security Exchange Board of India (SEBI) mandate to listed companies to include Business Responsibility and Sustainability Reporting (BRSR) in their annual reports on the stock exchange from 1 April, 2022 indicates the regulatory body’s commitment toward the formal implementation of ESG programs. SEBI now requires companies to not only identify ESG risks but also detail their mitigation strategy and contingency plans against those risks. In September 2020, The World Economic Forum and the International Business Council (IBC) encouraged large global companies in the IBC–about 130 in all–to adopt ESG standards for their 2021 reporting, thus reaffirming the importance of ESG planning for organisations.
While considerable progress has been made in terms of ESG reporting in recent years with companies, investors, and regulators recognizing the importance of sustainability and responsible business practices, organizations must ensure ESG reporting is meaningful and actionable for stakeholders.
With data at the heart of almost all transactions, it is more significant than ever before. There is constant exchange of information which creates multiple lacunas in organisations’ code of ethics and whistleblowing policies at large, which can be exploited. Ensuring compliance with regulatory and industry standards is crucial for building trust in the capital markets. The changing conversation around ESG has lent a valuable opportunity to businesses to evaluate their data protection, data breach control mandates.
Organizations should have an effective crisis management response plan in place to handle such events in a tactful manner. Given the recent emphasis placed on ESG by governments across the world, organisations that fail to incorporate optimum measures and policies to establish responsible environmental practices are likely to face reputational damage along with monetary penalty. Since ESG performance has become a metric of evaluation for financial performance, not measuring up can leave company boards vulnerable to allegations of greenwashing, which can hamper their prospects to garner potential investors. This is one of the reasons why the S and G factors of the ESG framework are likely to gain higher significance as they help evaluate an organization’s overall performance and long-term success.
The need for strong governance practices is of paramount importance especially in today’s times where organizations is riddled with risks and uncertainty. Organizations with strong governance practices, including independent board oversight, transparent decision-making processes, and effective risk management are more likely to build stakeholder trust and ensure long-term sustainability. As per a recent EY study, 90% of international investors looked for a company’s ESG performance as a key metric for long term business resilience. It is apparent that ESG compliance has been climbing up the list of priorities on organizations’ board agenda. We are at the confluence of ethics and ESG, and organisations must ensure that their ESG reporting mechanism is a well-oiled machine. ESG, as a part of corporate governance and code of ethics, should be viewed in a cohesive manner, communicating clearly that it is a part of the organization’s proactive business strategies.
Moving to the social factor of ESG, an organisation is considered just as competent and successful as its employees. An organization’s greatest asset is its workforce. Optimum talent management has been a persistent issue with most corporates, as observed in the wake of what has been termed the Great Resignation. Organizations that prioritize employee well-being and make diversity and inclusion an integral part of their firm agenda are likely to have a satisfied and productive workforce.
While a lot is being done to embed ESG into an organization’s underlying infrastructure, the social and governance factors are likely to higher significance in the years to come as organizations strive to build trust among stakeholders and contribute to a more sustainable and equitable future. With organizations pushing this agenda ahead full steam, I am optimistic the future of business will be defined by strong social and governance practices.
Arpinder Singh is Global Markets and India Leader, EY Forensic & Integrity Services. Arpinder has 25 years of experience in multi-jurisdiction investigations, forensic accounting and dispute advisory. He is the practice’s Global Managed Services Leader and a member of the Global Leadership Team. He has worked with corporates, regulators and law enforcement officials on many high-profile and global investigations across sectors. Having acted as an expert forensic accountant in a number of disputes, he is consistently recognized as one of the foremost legal practitioners in the Who’s Who Legal. Read more about Arpinder here.