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“If you are more conscious of your day to day activities, the company profits will improve"
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In an interaction with Urvi Shrivastav, Editorial, BW Businessworld, Nawneet Vibhaw, Partner in the Environmental Law practice at Shardul Amarchand Mangaldas & Co. speaks about the growing importance of ESG, why corporates must adapt to the changing times, and what they can do to achieve the same.
What does ESG and CSR mean?
ESG stands for Environment, Social, and Governance issues. For me, ESG is a state of mind, it is a more responsible way of doing your business. It is not new for any jurisdiction, including India, including environmental issues and social responsibility to the community. The good part is, there is a lot of conversation around it, a lot of people are talking about it and have realised the importance of being responsible. When we talk about environment, we are clearly referring to the fact that there is no harmful impact of your activities on the surroundings. Social issues includes the manner in which you conduct your business, so that the community around you does not face any adverse consequences because of it. Governance implies we carry out our activities in a fair and transparent manner, not carrying out any corrupt practices. These practices have always been there in our laws, it is just a more ethical way of doing things. These compliances also work as a guiding tool for investors and bankers who want to invest in companies that are more responsible.
How are companies restructuring their business models so as to cater to the ESG crietria?
It would be incorrect to say that companies have to drastically alter the ways in which they carry out their business earlier. We have always had laws that deal with environment, labour, governance, etc. To say there will have to be an overhaul in what we have been doing will not be correct. All compliant and responsible companies have always been doing these things, it is just that now there is an increased focus on these aspects. Now companies are expected to score well on these parameters. Now it is over and above what you have been doing, and is a way of documenting everything you have been doing so far and presenting it to the regulator. In the last one and a half years, there has been a lot of discussion around it and everyone knows now why they should be focusing on ESG parameters. This is going to be a blessing for them and they should take it much more seriously if they are not doing it already.
When we take ESG and CSR together, do they have any impact on company profits?
It does have an impact, because the idea behind ESG is not just charity. When you follow these principals, you are also improving the efficiency of the people who are the beneficiary of this. If you ensure you are hundred percent compliant with all the laws, it also improves the efficiency of the business. There is no reason you will not end up performing better than what you were earlier. If you are more conscious of your day to day activities, the company profits will improve. Your public perception will improve, you will be seen as more responsible, and will facilitate better performance in a more efficient manner. A lot of people see it as an additional compliance burden, but that is not the case at all. It is just a way of ensuring more efficiency. It will increase the image of the brand as well. When seen from a pure profit motive, it makes a lot of sense for companies.
Where are companies lacking today in ESG compliance?
We have had a whole lot of guidelines earlier like PRR, PRSRS, etc. A lot of awareness has been created with respect to ESG parameters. The responsible companies have always been compliant. It is not correct to say that there is an undue focus on environment only. Even if it takes a little more focus, there is still enough importance being laid on governance. A lot of companies indulge in welfare activities, as a part of their CSR. There are companies who have always ensured they are clean and clear in what they do. It is not correct to say that one part of ESG gets more importance than the other. This also depends on the sector and activities the company is involved in. Even if the companies were lacking, they are catching up given the webinars and seminars around ESG.
What will the ESG trends be in 2022 and 2023?
The webinars and other activities that have brought ESG to the forefront were precursor. From this financial year onwards, you have to compulsorily report if you are falling in the category of the top 1000 companies by way of market capital. Now it is time for action on the awareness generated. It is required that you follow what is needed and report appropriately, as well as showing how one can create a positive impact.
What can company leaders do to promote CSR and ESG in their corporations?
The top leaders need to be effective communicators in terms of why ESG compliance is important. A lot of companies now have Chief Environment Officers and Sustainability Officers on board. The idea is you can have someone who is conscience keeper of the enterprise and explains where they are actually going wrong, and what can be done better. The idea is to also bring the employees on board and ensure their activities also have a minimal impact on the environment. As a leader you have to reiterate the importance of ESG compliance. It also has an economic impact, where not just investors, but all stakeholders including consumers will be looking at you. The senior management can also ensure education via training programmes and external speakers regarding the importance of ESG activities.
What would your advice be to companies who wish to become more ESG compliant?
Please do not see ESG as a compliance burden, because these are requirements which will make you appear good. The idea is to see this as an opportunity to plug the loopholes and look within to find out what you are not doing as well as you should have been, where you have gone wrong or can possibly go wrong and fix those shortcomings.