One of the biggest challenges for decision-makers in the race for becoming ESG compliant is to also demonstrate genuine sustainability measures on environmental front. The push to score high on ‘S’ & ‘G’ aspects to achieve high score on ESG as a whole has been a futile exercise to entice investors and other stakeholders.  The regulatory measures and investors enlightenment is successfully shaping up a process that can separate wheat from chaff or can identify practices about a company’s environmental commitments that are misleading – a phenomenon commonly referred to as greenwashing. Interestingly, consumers are also increasingly aligning themselves with organisations that demonstrate genuine environmental consciousness. Now the companies are required to develop robust strategies that clearly highlight their commitment to sustainability amidst this complex terrain. 

However, the transition to cleaner energy models is a long and complex journey. Legacy companies face numerous challenges due to outdated infrastructure that is inherently polluting and inefficient. A prime example is India’s energy sector, where traditional power systems have historically played a crucial role in electrifying the nation. It would be unrealistic to expect these traditional power systems to integrate into new energy models overnight. Such transitions are both strategic and long-term, requiring substantial management commitment and significant capital investment. ~USD 5.8 trillion and USD 11.5 trillion could be required to fund a low-emission global economy goal by 2030 as per an estimate.

Considering this, it is essential to acknowledge the significant progress India has made in renewable energy adoption. The country is home to five of the world’s top 15 solar parks, with 175 GW of renewable energy capacity successfully operationalised by 2022—nine years ahead of its commitments under the Paris Agreement, a feat unmatched by any other G20 nation. Furthermore, India is strategically advancing innovative floating solar technology, which involves setting up large-scale solar plants on water bodies.

By limiting the consumption of traditional fossil fuels in operations and transitioning to renewable alternatives like solar energy, while aggressively slashing carbon emissions, the energy sector is demonstrating genuine ESG intent.

Understanding Greenwashing and its Effective Solutions

One challenge consistently highlighted by the stakeholders is compliance with the ‘E’ in ESG principles. Although strategies toward sustainability are devised, they often lack depth, failing to inspire trust among investors and customers. Often, these are merely a cosmetic exercise to comply with the regulations rather than achieving substantial progress. This superficiality has led to an increased scrutiny of corporate sustainability claims, resulting in a rise in litigations related to greenwashing, to the extent of even over 50% as seen since 2017. 

Parallelly to combat this issue of greenwashing measures such as rigorous audits, independent validation, benchmarking against industry standards and transparent reporting of voluntary disclosures are developed and improvised to effectively highlight sustainability efforts. Today, if the environmental claims are not substantiated with reliable evidence, organizations risk significant reputational damage and a loss of investor confidence.

The Business Responsibility and Sustainability Reporting (BRSR) is a game changer

The BRSR framework mandates that the top-listed companies furnish quantifiable metrics on their sustainability performance across various indicators, aiming to bridge the gap between corporate commitments and actual performance by aligning closely with international standards such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD).

As more companies embrace BRSR reporting, we can expect a reduction in the discrepancies between announced ESG initiatives and the actual performance outcomes. This shift will enhance corporate accountability, fostering greater trust among investors in corporate sustainability claims.

Ultimately, with time as investors become increasingly sensitive to environmental considerations in their selection process, companies will be bound to resist the temptation to engage in greenwashing practices. Achieving true ESG obligation requires organisations to address existing legacy challenges while embracing authentic compliance frameworks that emphasise on transparency and accountability. By doing so, organisations can improve their reputations while making meaningful contributions toward a sustainable future aligned with global climate goals.