Environmental, social, and governance considerations are no longer on the periphery of resilience, competitiveness, and long-term growth strategies of modern-day enterprises. Rather, recent events have placed it at the center of the global economic conversation. The devastating wildfires in California, which reportedly cost the US government billions of dollars, point to the glaring and far-reaching effects of climate change. Such catastrophes are not an isolated case but are part of a more comprehensive, escalating pattern of environmental disasters that pose serious ESG questions to enterprises worldwide.

Amid global shifts and local challenges, ESG must become a cornerstone of Indian enterprises’ strategy for resilience and long-term growth.

Decoding the new risk-reward equation in ESG

The ESG paradigm presents a unique and dynamic risk-reward equation. Neglecting ESG risks can result in reputational harm, regulatory scrutiny, and diminished market access. Conversely, a proactive ESG approach can unlock significant advantages—such as access to green financing, strengthened brand reputation, and long-term competitiveness. Recent data shows that ESG adopters are more likely to outperform their peer groups, with their funds providing better returns throughout the year.
This is sound business sense.

ESG factors must be integrated into business decisions because they inherently affect the success of any strategy. The only way companies can achieve this is to build ESG considerations into their risk management frameworks right from the outset and ensuring that these are reflected in organizational behaviours and actions.

There have been some critical shortfalls in previous corporate risk approaches due to the growing complexity of ESG-related factors. As evidenced by California’s experience, the cascading unmitigated effects of ESG risks require them to be examined at a deeper, systemic level much before they snowball.

But, distinguishing between disruptive risks and business-as-usual risks can be more challenging than it seems on the surface. To cultivate a balanced risk appetite, priorities must be realigned among all stakeholders, including shareholders, employees and customers is needed.

There is also growing need for reward mechanisms that signal and drive performance on ESG factors in addition to traditional metrics. Incentives tied to innovation, resilience, and sustainability can foster systemic behavioural changes across the organisation. For example, linking executive compensation linked to ESG goals such as reducing carbon footprint, would align well with the overarching ESG strategy of an organization.

The regulatory, industrial, and socio-economic factors shaping ESG priorities in India

India’s ESG priorities are shaped by a unique interplay of factors.Regulatory mandates such as the SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework are pushing businesses to disclose and act on ESG metrics.

Simultaneously, industrial players are witnessing a shift in their value chains, while socio-economic factors, including climate resilience, inclusivity, and equitable access to resources, are reshaping corporate responsibilities.

For instance, the 500 GW of renewable energy target by 2030 in India speaks not only to the push from the government to embrace the green movement but also the urgency to inculcate sustainability in industrial operations. The Corporate Social Responsibility (CSR) mandate requires companies meeting certain financial thresholds to allocate a minimum 2% of their net profit for the past three years towards corporate social responsibility projects7.

Meanwhile, national-level plans, such as the National Action Plan on Climate Change (NAPCC), are expected to enable India to adapt to climate change and enhance the sustainability of its development. There are also sectoral and targeted initiatives by the government, including Perform, Achieve and Trade (PAT), SATAT Scheme (Sustainable Alternative Towards Affordable Transportation)10 and so on, that are focused on driving the country towards its ESG goals.

Corporations are also reimagining their organisational strategies in line with the growing call for ESG in strategic and reporting considerations. From carbon neutrality to water-positive; the switch to renewables and waste management, and the focus on green supply chains – commitments are manifold and encouraging.

Socio-economic parameters like poverty alleviation, access to clean water, and gender equality are increasingly woven into ESG strategies today, which reflect the wider expectations of communities and stakeholders.

Evolving expectations: Stakeholder demands on Indian enterprises

Corporate jumpstart on ESG has not evolved organically, but rather in response to rising pressures from immediate stakeholders, comprising investors, customers and employees and regulators. Investors today demand greater accountability and transparency in ESG performance as they believe companies with strong ESG are less risky and better positioned for resilience and growth.

Integration of ESG into frameworks and governance: A technology-perspective

Integrating ESG into core business strategy requires a holistic approach. This includes embedding ESG metrics into enterprise risk management frameworks, aligning governance structures with sustainability objectives, and leveraging key performance indicators (KPIs) to track progress.

The game-changers here are advanced technologies like AI, blockchain, and IoT. Technologies have the potential to impact key sustainability areas – for example the reduction of global emissions by 20% – thereby providing a robust foundation for compliance and innovation. Low-hanging fruits include:

-AI-based analytics to enable real-time tracking and monitoring of ESG metrics.
-AI-enabled dashboards for automated ESG data visualisation, reporting and trend analysis.
-Blockchain for tamper-proof, real-time ESG compliance and audit trails.
– IoT devices to monitor resources at every stage of the production and logistics lifecycle and ensure that sustainability targets are met.
– Big data analytics to benchmark ESG performance and uncover actionable insights.

Redefining leadership: The role of boards and decision-makers in ESG success

Scaling ESG impact requires proactive governance. Boards and decision-makers need to take the lead on ESG and positioning it as a business imperative. They need to engage systemically with value chains and ensure that everyone in the organisation actively supports ESG initiatives.

ESG risks are of utmost urgency as pressures, both globally and domestically, intensify. Indian boards must take swift and decisive action to inculcate ESG into their DNA. By embracing ESG as a defining force, enterprises can navigate risks and opportunities for sustainable and inclusive growth. The time to act is now.