The emerging Environmental, Social, and Governance (ESG) mandate in corporate governance presents a new challenge for Indian companies. This rides upon the Indian Government’s focus on the need to adopt ethics, transparency, and accountability among businesses to promote responsible and sustainable business practices. The focus now is on how these sustainable growth practices will contribute toward value creation for the companies and their stakeholders. ESG-led discussions are finding more airtime in discussions on decisions around mergers, acquisitions, and divestitures, as well as new product launches and innovations. But how do these factors relate to corporate performance and structuring deals? While in the previous edition, we looked at shifts in governance and reporting, this edition explores the fast-changing financial and consumer preference landscape.����

Financial Performance: How the lower cost of greener capital is driving ESG decisions��

One of the first questions asked in boardrooms is this: “To what extent does good ESG translate into good financial performance?” The easy answer is that there is an overwhelmingly positive relationship between ESG scores on the one hand and financial returns on the other, whether measured by equity returns or profitability, or valuation. But interestingly, there is a new element in the mix: the cost of capital. There is increasing evidence that a better ESG score translates to about a 10 percent lower cost of capital as the risks that affect your business, in terms of its license to operate, are reduced if you have a strong ESG proposition.

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In a four-year study published in 2020, Morgan Stanley Capital International (MSCI) reported that companies with high ESG scores experienced lower capital costs than companies with poor ESG scores in both developed and emerging markets

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Moreover, the cost of equity and debt followed the same relationship. All these studies continue to indicate that incorporating ESG into the management framework helps companies enhance the efficiency and value of the organization while lowering downside risk. While experts agree that investing in companies that do well on ESG standards is a comparatively new theme in the Indian market, it is only a matter of time before this becomes the norm.

Consumer Preferences: The Shift to Green��

We are seeing a definite green shift in the preferences of the Indian consumer after the global pandemic. Sustainability and health have become important factors when making purchase decisions. Of the Indian consumers surveyed in a recent global study, 78% were willing to change their purchasing behaviour to reduce a negative impact on the environment. (Source: ) Urban Indian consumers are most willing to do this. The percentage of respondents is the highest across all countries surveyed.��

Moreover, Indian consumers are at the leading edge of the shift compared to other countries studied, including the United States, India, United Kingdom, Canada, Germany, Mexico, Spain, Brazil, and China. Across various parameters related to lifestyle choices and shopping behaviour, those surveyed in India showed higher awareness and concern for sustainable alternatives. For example

This makes it amply clear that the Indian consumer, particularly from an urban background, is increasingly concerned about the global climate crisis. If you’re a company stepping up your response to sustainable practices, such as adopting greater use of renewables in your supply chain, reducing plastic waste, and investing in ESG outcomes, your consumer will notice. Nowhere is this better illustrated than the study of Indian consumers that reported that 48% of consumers share an emotional connection with products or organizations that demonstrate eco-friendly qualities.
The shift doesn’t affect the purchase behaviour alone.

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In conclusion, the trends driving ESG in India foretell a future we will not have to fashion. We are on an inevitable march towards a greener tomorrow, led by markets and consumers. The successful organizations of the future will see that shift today before it comes as a surprise.����

In the subsequent post, we will deep dive into industry–specific imperatives for ESG.����

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As the delegates concluded negotiations in November 2021 at Glasgow, it became clear that climate commitments would reshape the agenda for businesses around the world. India demonstrated the intent to move away from fossil fuels as much, and as early as possible pledging to:

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With greenhouse gas emissions becoming central to any discussion on energy system choices, it is time to look at India’s role in the global context, given its unique challenges. As sustainability becomes critical to business success and not an afterthought, India is keen on keeping pace with the world in its race to net zero. That’s why there has never been a better time for Indian businesses to understand the acceleration of climate action across industries.��

India is now committed to the energy transition of decarbonization and achieving a state of net zero emission, making remarkable progress in recent years. It now has the 5th largest solar and 4th largest wind power capacity in the world, with its total capacity being over 100 GW. But there still is a long road to travel if it is to realize its commitments, and this is where private businesses come in. Responsible companies are throwing their weight behind net-zero commitments that are outpacing the formation of supply chains, market mechanisms, financing models, and other solutions and structures needed to smooth the world’s decarbonization pathway. For the Indian business, these conditions will create opportunities to innovate and to lead coordinated action by industry peers, value-chain partners, capital providers, and policymakers.��

By accelerating the strategic shift towards carbon-neutral operations, 51����is standing by its commitment to the role of a frontrunner in climate protection.��

With sustainable development and the climate change movement gaining momentum in India, the sustainability reporting landscape is changing rapidly. The push from investors has further accelerated this movement, and it is now incumbent on companies to report their sustainability performance in order to maintain transparency with stakeholders. Sustainability reporting frameworks have evolved over time and companies worldwide have adopted these frameworks for measuring, monitoring, and disclosing performance in areas related to environmental, social, and governance (ESG). ��

The Evolving Indian Regulatory Framework��

While global ESG disclosures and frameworks such as the Global Reporting Initiative (GRI), Integrated Reporting (IR) and Sustainability Accounting Standards Board (SASB) are well known, India is gradually moving towards developing regulations around ESG. With the introduction of the Business Responsibility and Sustainability Reporting (BRSR) framework, SEBI has joined the group of countries and international organizations to have released comprehensive sustainability reporting frameworks. Though the reporting mandate is presently restricted to the top 1,000 listed companies by market capitalization, there is reason to believe that a wider range of companies would soon be covered under it. Advancements in the regulatory climate mean that mandatory disclosure��will be part of the evolving operating environment in India. All companies will need to have policies and practices to manage and report policies related to consumption and emissions, and more crucially the leadership and intent to see these changes through. Technology will play an increasing role in internalizing the way these changes will affect how businesses are run.��

Incentivizing Energy Intensive Sectors��

The economics of carbon offsets is going through rapid development, incentivizing energy-intensive companies to fundamentally change the way they do business. The Perform, Achieve, Trade (PAT) scheme by the National Mission for Enhanced Energy Efficiency is a regulatory instrument aimed at reducing specific energy consumption in energy-intensive industries. It operates on a market–based mechanism that enhances the cost-effectiveness of energy efficiency via certification of energy savings with ES-Certs. These can be traded on the power exchange. Meanwhile, international operations present their own regulatory norms that are driving the shifts in mindset towards a greener way of doing business. For example, the Carbon Border Adjustment Mechanism (CBAM) is Europe’s move towards sourcing more sustainable future products from countries that export to it. The move will introduce a carbon price on certain products imported into the EU, to align with the overarching goal to achieve climate neutrality in Europe by 2050. It is clear that global technology partners who have deep expertise in sustainable business practices will be better placed to partner with tomorrow’s successful companies.��

As India emerges from the shadows of the COVID-19 pandemic, we are seeing the economic landscape resonating with that of the world – on a wave of activism, financial innovation, and government policies aimed at positive societal change. A growing number of CEOs, policymakers, and consumers know that big social and environmental problems, particularly climate change, are accelerating beyond the boundaries of our current system.��

In the next editions, we look at evolving consumer preferences and access to greener capital markets. Stay tuned!��

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Industries can leverage technology to counter environmental challenges and make the world a better place, Susanna Hasenoehrl, head of sustainability, Asia-Pacific and Japan, SAP, highlighted in a special talk titled, How technology is accelerating sustainability today at the 51����presents Mint Sustainability Action Summit 2022.

Sustainability and Climate Change

About 80% of people have already experienced periods of climate change through extreme weather events, according to a recent survey. Yet, a 51����research found that six in 10 businesses think sustainability will only become financially relevant more than five years from now. This, Hasenoehrl felt, does not reflect reality. “There is a direct link between the health of our environment, the health of our society, and the health of our economy. That is particularly true in India. India’s impressive growth depends not only on investment and people but also on nature. A third of India’s economy is highly dependent on nature and another 30% is intermittently nature dependent, a study by World Economic Forum and PwC shows,” she said.

The Indian economy has seen unprecedented growth and the country is on the path to becoming a $5 trillion economy. We must be mindful that this growth does not come at the cost of sustainability.

“The challenge for businesses is to make sustainability profitable and profitability sustainable. Companies with high environmental social and governance performance outperform their peers by more than 3.7 times over seven years, Accenture research shows,” Hasenoehrl said.

51����– Sustainability and Beyond

51����has been working on sustainability for more than a decade. In the Asia-Pacific and Japan region, 51����has set an ambitious target of helping their customers reduce one billion tonnes of carbon emissions by 2025. “At first, we were focused on our own operations, our very own data centres, which have been running on renewable energy since 2014. 51����has ranked top of the Dow Jones Sustainability Index for software companies for the past 15 years. We’re also enabling our customers to be more sustainable. By working with just 1% of our customer base, we can help address up to 20% of the emission reductions that are necessary to achieve the 1.5 degrees Celsius climate targets,” she explained.

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Recent reports have revealed that India’s top 250 companies contribute 36% of the country’s��total green-house gas emissions. With climate change posing a significant danger to life on the planet, 51����and TERI have come together to combat climate change and ensure a sustainable future. The collaboration will leverage TERI’s domain expertise in sustainability, specifically in Energy and Resources sectors, and 51����India’s technologies to enable business processes, collaboration with value chains, tracking and reporting capabilities to achieve sustainability.

Key focus areas of the partnership will include:

• Climate Change Awareness: to steer action and support the larger sustainability agenda in India
  • By accelerating climate change ambitions across industries helping their transition to a low carbon economy
• Resources and Sustainability Audit: to jointly offer sector specific audit and efficiency improvement services and guidance
  • Enabling industries to drive actions through sustainability reporting and analysis aligned to global framework for the good of environment, society and economy
• Impact on Policy
  • Support government to make informed sustainability related policy decisions through data driven approach that further helps to monitor the impact based on Nationally Determined Contributions (NDC) and Sustainable Development Goals (SDG) achievements
• Build a Net Zero Path: Knowledge sharing and learnings of best practices, through creation of case studies, success stories, and whitepapers, from key industries like Energy, Waste management, Government, and others

Kulmeet Bawa, President, and Managing Director, 51����Indian Subcontinent said, “India is the world’s fourth biggest emitter of carbon dioxide and we have to take action now to ensure the next generation has a better future. We also understand that sustainability is a team sport, and building a vibrant ecosystem is the best approach to accelerate our pledge to achieve Net-Zero. SAP, together with TERI, is committed to join forces that march towards India’s vision of becoming a carbon neutral nation by 2070.”

“It is the responsibility of every organization in the country to ensure they drive their business sustainably. It is extremely pleasing to see 51����India’s efforts to not only facilitate sustainable growth for itself, but the nation at large. Only through a joint effort by the entire nation can we negate the impact of climate change and bring about real, impactful solutions.” said Dr. Vibha Dhawan, Director General, TERI.

About SAP

SAP’s strategy is to help every business run as a sustainable intelligent enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: 87% of the world’s total global commerce touches an SAP® system. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers’ businesses into sustainable intelligent enterprises. 51����helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want – without disruption. Our end-to-end suite of applications and services enables business and public customers across 25 industries globally to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, 51����helps the world run better and improve people’s lives.

For more information, visit www.sap.com

About TERI

The Energy and Resources Institute (TERI) is an independent, multi-dimensional research organization, with capabilities in policy research, technology development, and implementation. Headquartered in New Delhi, TERI has regional centres and campuses in Gurugram, Bengaluru, Guwahati, Mumbai, Panaji, and Nainital, supported by a multi-disciplinary team of scientists, sociologists, economists, engineers, administrative professional and state-of-the-art infrastructure.

For more information, visit www.teriin.org

For further information please contact:

51����India
Chaya Arora
Head – India Communications
chaya.arora@sap.com

��

TERI

P Anima
Media and Communications Lead
animap@teri.res.in

Sumit Bansal
sumit.bansal@teri.res.in

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The world’s population is predicted to reach over 9 billion people by 2030. This not only adds on to Planet Earth’s carrying capacity but increases the demand for the already exhausting resources.��The take-make-waste linear approach is inherently unsustainable. There’s an urgent need for a comprehensive solution and how we approach the manufacture-to-consumption chain. As per the��,��only 9% of materials are reused or recycled.��One way to make better use of resources is to create a loop of reuse, thus eliminating waste. This is referred to as a circular economy. The economy, markets, and sectors have the potential to be re-energized by circular��firms.

An immediate impact of adopting circular economy and sustainable practices is its ability to reduce the spiraling effect of climate change.��We are likely to go past the threshold for dangerous global warming, i.e. +1.50 Celsius between 2027 and 2042, according to research��published in��.��The����recently referred to the climate situation as a “Code red for humanity.”

Asia more at risk, time to step up

Asia is more exposed to climate risk due to the absence of adaptation and mitigation.��By 2050, parts of Asia will witness a rise in temperatures, heat waves, extreme precipitation, hurricanes, and shortages in water supply. The only way out is sustainable resource management and pivoting on technology to make this practical.

Businesses in the Asia-Pacific regions need to step up their environmental efforts to use the available resources rationally to preserve them for future generations and for the sustainability of ecosystems. Sustainability is no longer seen as a separate corporate responsibility initiative. You can remanufacture the existing items to create new ones, to shift the focus on having a circular economy. Technology can also assist companies in increasing circularity by linking the organizations that collect recyclable materials with those that can process them.��

The World Economic Forum’s Sustainability Report suggests strategies for companies to become more environmentally friendly. It provides a collection of best practices that businesses may use to boost their sustainability efforts & be profitable at the same time.��Here are some real-life examples of successful sustainable practices that have helped these companies cut their footprint.

Case 1.��Eastman Chemical Co, a specialty materials company that produces a broad range of products for daily use, from building and construction materials to textiles,��has strengthened its focus on sustainable innovation. They have successfully reduced their��greenhouse��gas (GHG) emissions by 10% and have begun the production of new items through��molecular recycling. They have established targets of��recycling plastic waste annually of up to 500 million pounds by 2030.��

Case 2.��Foodstuffs NZ��adopted the practice of using photovoltaic panels for their distribution centers along with carbon dioxide refrigeration gases. They have reduced refrigerant gas-related emissions by 99%. Along with that, the reduction of waste to landfills is by 45%, most of which is diverted to other uses to optimize zero food waste. A “food in the nude” program has encouraged the suppliers to reduce plastic production yearly by 3.4 tons.��The company also redesigned its transport operations, for instance, by improving truck utilization, optimizing routes, and reducing the number of empty trucks on the road. Transport in New Zealand accounts for around 18% of total GHG emissions, and Foodstuff NZ took this as an opportunity to address emissions from its transport fleets.

It’s possible to put lofty sustainable goals into practice by revisiting how businesses run, from their operational processes to innovation.��Here are some strategies that you can adopt to reduce the carbon footprint:��

• Embracing the circular economy

The concept of circularity is based on the separation of economic growth from resource use and waste creation. Focusing your efforts on keeping plastic trash out of landfills and rivers, and protecting natural resources, can drastically lower the reliance on fossil feedstocks. The Asia Pacific region has concentrated its efforts now on fighting plastic pollution.

• Embedding sustainability in operational changes

By making sustainability an intrinsic part of operations and innovations, businesses can cut their carbon footprint. For instance, energy and refrigeration gases comprise the most carbon emissions in the grocery industry. Refrigeration uses a lot of energy. If the refrigeration problem is solved, then companies can not only save costs but cut emissions.��

• Incorporating Technology

Organizations need to start including circularity into their economic models, thanks to technological advancements. Use specialized software programs to collect data from all elements of your operations. Use ERP to manage resources better and track your source of supply. For��Foodstuffs NZ,��data was crucial in establishing sustainability goals and putting them into action. They formed a collaboration to track and trace recycled content across the value chain using cloud-based technology.��

• Changing Mindsets and Processes

Changing your business models while still having a regular flow of income is one of the biggest barriers in embracing circularity and advancing sustainability objectives. Having a clear vision about how sustainable practices can benefit the business and making sustainability a permanent part of your culture is key to driving new mindsets in organizational behavior.��

• Setting goals, you can track

Learning from companies that have already put their sustainability agendas into practice successfully can help inform your strategy.��Creating a supply chain map will assist in the decision-making process of how each business can contribute to sustainability and what issues they face to remove the future bottlenecks.��

The way forward

Sustainability is more than a “nice to have” concept now; it needs to be a critical component of your strategy and operations. Businesses that invest in sustainability now will gain a competitive edge. You may set key performance indicators using technology and real-time data. It’s crucial to make long-term plans for efficiently managing your sustainability programs.��Learn more about how sustainability and the circular economy can help companies reduce their carbon footprint and optimize costs and resources in this��.��Adopt the right business practices today to be able to survive disruptions and build resilience in your business tomorrow.

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