In recent years, you must have heard of Environmental, Social, and Governance (ESG) and how companies are embracing ESG principles. If you think this trend is just a corporate one, think again. ESG has direct implications for consumers, moulding purchasing decisions and creating a more sustainable and ethical marketplace. Moreover, in this digital age with all information at our fingertips, ESG principles are converging with technology to transform the consumer landscape in India.
Recent reports show that ESG investments in India have increased from US$330 million in 2019 to US$1.3 billion in 2023, proving the significance of ESG. Companies need ESG not just to cater to the consumer; investors are duly interested in companies with ESG-focused practices, because the resulting regulatory intervention can ensure investor protection. In May 2021, the Securities Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Reporting framework, ensuring that certain listed companies must disclose their ESG related information.
According to a study by Avendus Capital, India's ESG is expected to contribute to nearly 34% of total domestic AUM by 2051, which is in sync with India's 2070 Net-Zero target.
Why should the Indian consumer care about ESG and how is technology playing a role in the integration of ESG practices within India's business ecosystem?
Jitesh Shetty, Founder and CEO of Credibl, a sustainability tech company and Qwiklabs Inc., which was acquired by Google, says while India is doing well with regard to ESG, we do have a long way to go. ?India is doing very well when you look at regulations like BRSR reasonable assurance, we are quite ahead of the curve here from the rest of the world,? says Shetty. ?But also, our problems are large-scale problems and hence we have a long way to go.?
He cites the example of TATA Sons, which is a leader in sustainability, and their company IHCL, the Taj hotel group, which is doing well with ESG KPIs.
They deeply care about ESG and don't do this because someone is policing. Their program called PAATHYA has a huge consumer mindshare. You walk into any Taj hotel and you will see the impact PAATHYA is having,? he explains.
ESG is a set of standards that investors, companies, and consumers practice to appraise how a company impacts the environment, society, and its governance structure. Why should consumers think of ESG or things like digital footprint when they buy a product or service? As consumers become more socially and environmentally conscious, they are increasingly seeking products and services that align with their values.
?This is a multi-front problem,? says Shetty. ?Corporates have to better their ESG posture. But consumers also have to do their part. Buying decisions can have a significant impact on the environmental footprint. For example, you are buying a home textile product. If it's made from organic cotton, green energy is used in the factory and packaging is green. Then, the overall environmental impact will be very low.?
Digital Footprint and Environmental Impact If we look at the Indian market, it's flooded with digital products and services, and the Indian consumer is aware of the environmental implications of this digital transition. E-waste, energy consumption, and sustainable data management practices are, slowly but steadily, becoming part of household discussions.
For instance, digital giant Google's commitment to operate on 100% renewable energy since 2017, is an announcement that environmentally conscious consumers took notice of. Closer to home, the Mumbai-based RPG Group, has vowed to conserve, restore, and grow a million trees by 2030 with 1t.org, a Geneva- based World Economic Forum platform that wants to rally a global reforestation community that grows and looks after a trillion trees worldwide by 2030.
As issues like climate change and global warming become more and more pressing, consumers in India are starting to pay more attention to a company's environmental practices. From carbon footprint to waste management, they are starting to read the labels for the products and services they buy. For proof, just look at the arrival of electric car giant Tesla in India. Tesla is banking on the environmental aspirations of Indian consumers to own a vehicle that is climate friendly.
Social Responsibility in the Digital Realm The digital space, where we interface every single day of our lives with various digital entities, is a prominent platform where companies can learn about what consumers care about.
At the same time, they can showcase their own commitment to social responsibility, which can include aspects from fair labour practices in tech supply chains to diversity and inclusion initiatives in digital workplaces.
For example, when cloud company Salesforce announced its Pledge 1% initiative to donate 1% of its product, equity, and employee time, it inspired many other companies to follow suit.
Governance in the Digital Age With the rise of cyber threats and data privacy concerns, digital governance is not something consumers can ignore. Already, what's being called ?the mother of all breaches' just occurred a few days ago, revealing 26 billion records, which includes popular and regular sites like LinkedIn, Snapchat, Venmo, Adobe, and X. This is why consumers now look for companies with robust cybersecurity measures, transparent data practices, and ethical usage of technology.
While international tech giants like Apple and Microsoft are known for their digital ethics approach, in India, IT giant Infosys, has been recognized for its robust governance framework.
Last year, Infosys Co-founder Nandan Nilekani, spoke about how ESG not only builds trust but also elevates brand value.
"A commitment to strong governance is not just a matter of compliance; it's a strategic imperative for sustainable success in the dynamic world of startups," he said.
Technology's Role in Advancing ESG in India Significant as ESG is, technology has been aiding the sector, so that organizations can integrate ESG principles in their functions as much as possible. How is technology enabling ESG in the Indian landscape? Will it get better in the future?
?Technology across raw materials, energy sources and software is helping,? says Shetty. ?Innovation in materials is where you can take organic fibre but make it durable for real world use, efficiently use solar energy in manufacturing and then use software for better traceability and ESG data management with automation.?
Some key ways in which technology is aiding the adoption of ESG practices are as follows: Data analytics: With copious amounts of data related to their ESG performance, organizations are able to analyze, find patterns, and identify the do's and don'ts in their structure. This helps decide the future courses of action that are environment and society friendly.
As Nitesh Mehrotra from business consulting firm EY India says, ?ESG today is a focused boardroom agenda for all leading enterprises to create and protect value. And I think it is very critical to have consistent and comparable scientific measurement of sustainability variables across all our stakeholders. So, clearly, there is a critical need to have a single version of truth with near to real time performance analytics to create actionable insights.?
It's imperative that this data be shared with consumers, and that consumers themselves demand it from companies, in order to help them make more conscious purchasing decisions.
Blockchain for transparency: An emerging technology that can increase transparency in ESG is blockchain. Its ledger technology allows companies to provide consumers with real-time information about the origin, production processes, and ethical practices applied in their products and services.
ESG rating platforms: Technology has given rise to ESG rating platforms, like MSCI, Sustainalytics, and Bloomberg ESG, which evaluate and score companies based on their ESG performance. Anyone, investor or consumer, can access these platforms to make informed decisions, influencing companies to improve their ESG practices.
The Path Forward As the influence of ESG on Indian consumers continues to grow, the onus is on businesses to embrace sustainable and ethical practices. Companies that prioritize ESG considerations not only contribute to a better planet and society but also gain a competitive edge in the evolving marketplace.
?When you start with ESG at the core it makes that a differentiator in the marketplace. Also, you start with a green foundation,? advises Shetty.
He also adds that ESG can lead to a more equitable society, ?In India, citizens face significant environmental concerns on a daily basis. The air quality in all tier-1 cities is bad. Waste management is not streamlined and solved yet. When it comes to social indicators, we are far from creating an equitable society. The same is true with corporate compliance and governance. ESG compliance can help address all these issues.?
As consumers, the power to drive positive change lies in your purchasing decisions. By choosing products and services from companies that uphold ESG principles, you can become a part of the sustainable and socially responsible business environment. As technology helps in advancing ESG practices, going ahead, you're likely to see even more transparency and accountability in the products and services you choose, ultimately shaping a more conscious and responsible marketplace in India.