ESG – Environmental, Social and Governance

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What is ESG ?

ESG stands for Environmental, Social and Governance. These are the three pillars of the ESG framework. ESG framework is all about “How corporates act on the rising risk and opportunities due to environmental, social and governance factors in today’s world”.

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Overview of ESG factors:

Environmental, social, and governance (ESG) refers to three central factors that companies should consider when evaluating their overall performance and impact. These three factors are often referred to as “Triple Bottom Line”, which is a phrase coined to describe the three pillars of sustainability.
Environmental factors refer to a company’s impact on the natural world. This includes things like carbon emissions, water usage, and waste management. Companies that prioritize environmental concerns often focus on reducing their carbon footprint and increasing their use of renewable resources.
Social factors refer to a company’s impact on people and communities. This includes things like labour practices, diversity and inclusion, and community engagement. Companies that prioritize social concerns often focus on creating a positive and inclusive culture for their employees and supporting the communities in which they operate.
Governance factors refer to a company’s leadership and decision-making processes. This includes things like executive pay, board diversity, and transparency. Companies that prioritize good governance often have strong and transparent leadership and decision-making processes that are designed to benefit all stakeholders.

ESG Reporting

Nowadays, ESG is considered more of a reporting framework rather than sustainability related disclosures. Environmental, social, and governance (ESG) reporting is a way for companies to disclose information about their environmental, social, and governance practices. It is becoming increasingly important for companies to be transparent about their ESG performance as it can impact their reputation, their relationship with stakeholders, and their financial performance. Many investors and consumers are looking for companies that prioritize sustainability and social responsibility, and ESG reporting can help companies communicate their efforts in these areas. In addition, some regulatory bodies and stock exchanges have begun to require ESG reporting as a way to increase transparency and accountability.
Reporting by the companies is usually done by using either of the two reporting frameworks: Global Reporting Initiative (GRI) and Sustainable Accounting Standards Board (SASB).

What’s in it for the Investors ?

ESG investing also known as socially responsible investing or sustainable investing has become a hot topic in capital markets on all continents. Investors who takes into account environmental, social and governance risk and how well the company tackles those risks into their investing principles can improve their returns from the stock market in the long-term. 
This can be accomplished by investing in companies that are leaders in their industry in terms of ESG performance, or by avoiding companies that have a negative impact on these areas. Some investors believe that companies with strong ESG performance are better long-term investments because they are more likely to be sustainable and less exposed to risks such as regulatory changes or reputational damage.
ESG Momentum

ESG Greenwashing

Although, there is no regulatory requirement for ESG Reporting in India but recently BSE has introduced an ESG Guidance to assist listed companies wishing to incorporate ESG Reporting into their existing reporting requirements. 
But the real question is “Whether the companies incorporating ESG reporting into their existing reporting requirements are really ESG sustainable?
Some companies may engage in “Greenwashing”, which means they present themselves as more environmentally or socially responsible than they really are, in order to improve their reputation or appeal to investors. This can be done through misleading marketing and advertising, or by failing to disclose important information about their environmental or social practices. It is important for investors to do their due diligence and research a company’s ESG practices before making an investment, to ensure that they are aligning their values with their investments.

Conclusion

Overall, ESG is an important consideration for companies and investors alike. By prioritizing environmental, social, and governance concerns, companies can create long-term value for all of their stakeholders and make a positive impact on the world.

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