integrate ESG into their firms

Mr. Neeraj Akhoury is the CEO of Holcim India and MD & CEO of Ambuja Cements Ltd. Having over 25+ years of rich experience in the steel and cement industries, he has worked in leadership roles in India and other emerging markets. He joined the company’s board in 2020 and since then has played an active role as a member of the CSR & Sustainability Committee in driving the group’s sustainability commitments in India.

Over the past couple of years or so, investors have become increasingly interested in ESG. In 2020, as the coronavirus pandemic caused the century’s biggest social upheaval, it brought ESG factors into sharp focus. Investors, board rooms and communities worldwide were presented with the realization that business activities impact the environmental, social and governance factors. The pandemic made us ponder over how much GHG emissions are the result of haphazard business activities, how fragile is the societal thread of communities, and how well-planned governance is of the essence in such difficult times.

It’s no wonder that ESG is becoming a hot topic among investors, making it no longer a choice but a topmost business priority. Investors and businesses alike are realising that incorporating strong ESG practices into their operations is not just the wise thing to do, but also makes for a good business sense.

Business leaders’ view of ESG

It is high time we moved away from the perception that investments in areas of environmental and social impact might be counterintuitive to a corporation’s purpose of maximizing shareholder returns. Various studies have proved that today’s investors have a laser-sharp focus on the ESG performance of companies because firms that prioritize ESG performance fare far better in the stock market.

In a recent research conducted by Harvard Business Review, 70 executives were interviewed from 43 global investment firms and it was reported that ESG was almost unanimously the most important consideration for these executives. Evidently, sustainability has been a concern for investors for several years, but it is only recently that it has gained momentum. According to this research, most of the investors have outlined significant steps their organizations were taking to assimilate sustainability into their investing criteria.

The ESG wave is here to stay

Many studies have shown a correlation between better financial success and strong performance on relevant ESG priorities. One such study by Bank of America Merrill Lynch in 2018 revealed that companies with a stronger ESG track record outperformed their peers in terms of 3-year returns, were less likely to have large price drops and eventually become high-quality stocks with far less risk of going bankrupt.

Not only institutional investors are betting big on ESG but HNIs (high net-worth individuals) are also concerned if their investments are making any difference to make the world a better place. Moreover, the Bank of America ESG report noted that, as the millennials’ wealth grows, there could be an inflow of $15–20 trillion into ESG investments over the next 20 to 30 years.

Out of the three elements of ESG, the environmental factor holds huge importance in the construction industry. Having said that, the Indian construction and building sector has amplified its focus on sustainable practices. Initiatives such as science-based targets, and sustainable investments in green building solutions are a great reflection of the fact that going green can create greater value for stakeholders, beyond just profits.

Communicating ESG priorities

In India, ESG reporting is still evolving. Securities and Exchange Board of India (SEBI) has set up new Business Responsibility and Sustainability Report (BRSR) standards, which will be applicable to the top 1,000 listed firms basis their market capitalization, beginning from the fiscal year 2022-23. With this, investors will be able to evaluate ESG performance across businesses and sectors, allowing them to make better investment decisions.

The key difficulty for business leaders is not just determining the correct ESG objectives, but also ensuring that they are ingrained in the company’s culture which goes beyond mandatory reporting mechanisms. The scope and means to do this are practically endless. Leading by example, creating ESG awareness programs for employees, recognising and rewarding fresh ideas to deliver better ESG outcomes, and pushing mid-level leaders to create their own internal ESG targets can be the initial steps that would lay a solid foundation for ESG inclusion into every business. The onus lies with the business leaders to embed ESG priorities into the DNA of their firm and create value not only for shareholders but for the environment and communities at large.

Disclaimer: This article was first published in the Economic Times and is repurposed for our audiences upon the author’s consent.