{"id":5175,"date":"2022-09-12T06:22:46","date_gmt":"2022-09-12T06:22:46","guid":{"rendered":"https:\/\/news.sap.com\/india\/?p=5175"},"modified":"2023-08-14T16:06:25","modified_gmt":"2023-08-14T16:06:25","slug":"sustainable-india-2","status":"publish","type":"post","link":"https:\/\/news.sap.com\/india\/2022\/09\/sustainable-india-2\/","title":{"rendered":"Towards a more Sustainable Future: The India Chapter (Part 2)"},"content":{"rendered":"
T<\/span>he <\/span>second part in the <\/span>series <\/span>by Manish Prasad, <\/span>Head of Industries, <\/span>SAP<\/span> Indian Subcontinent<\/span>, <\/span>explor<\/span>es<\/span> the Indian sustainability landscape set against broader global shifts towards a greener tomorrow.<\/span> This edition looks<\/span> at two key trends: the financial implications of the lower cost of greener capital and the Indian consumer\u2019s shifting preferences for more sustainable products and services.<\/span><\/span>\u00a0<\/span><\/strong><\/em><\/p>\n The emerging Environmental, Social<\/span>,<\/span> and Governance (ESG) mandate in corporate governance presents a new challenge for India<\/span>n companies<\/span>. <\/span>This rides upon the <\/span>Indian Governmen<\/span>t\u2019s focus on <\/span>the need to adopt ethics, transparency, and accountability among businesses to promote responsible <\/span>and sustainable <\/span>business practices. <\/span>The focus now is on how these <\/span>sustainable growth <\/span>practices will <\/span>contribu<\/span>te<\/span> toward value creation for the companies a<\/span>nd<\/span> their stakeholders.<\/span> ESG-led discussions are finding more airtime <\/span>in<\/span> discussions on <\/span>decisions around mergers, acquisitions, and divestitures<\/span>, as well as new product launches and innovation<\/span>s<\/span>. But how do these factors <\/span>relate <\/span>to corporate performance and <\/span>structuring <\/span>deal<\/span>s<\/span>? <\/span>While in the <\/span><\/span>previous edition<\/span><\/span><\/a>,<\/span><\/span> we looked at shifts in <\/span>governance and reporting, this edition explores<\/span> the <\/span>fast-changing <\/span>financial <\/span>and consumer preference <\/span>landscape<\/span>.<\/span>\u00a0<\/span><\/span>\u00a0<\/span><\/p>\n One of the first <\/span>question<\/span>s<\/span> asked in boardrooms is this: \u201cT<\/span>o what extent does good ESG translate into good financial performance?<\/span>\u201d<\/span> The easy answer<\/span> is that there is an overwhelmingly <\/span>positive relationship between ESG scores on the one hand and financial returns on the other, whether measured by equity returns or profitability<\/span>,<\/span> or valuation. <\/span>But interestingly, there is a new <\/span>element <\/span>in the mi<\/span>x<\/span>: <\/span><\/span>the cost of capital<\/span><\/span><\/strong>.<\/span> There is increasing e<\/span>vidence <\/span>that <\/span>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.<\/span><\/span><\/p>\n Source: Forbes<\/a><\/p>\n In <\/span>a four-year <\/span>study <\/span>published in 2020, Morgan Stanley Capital International (MSCI) reported <\/span>that companies with high ESG scores experienced lower c<\/span>apital costs than<\/span> companies with poor ESG scores in both developed and emerging markets<\/span><\/p>\n Source: MSCI<\/a><\/p>\n Moreover, t<\/span>he cost of equity and <\/span>debt followed the same relationship. All these studies continue to indicate that incorporating ESG into <\/span>the<\/span> management framework <\/span>helps <\/span>companies enhance the efficiency and value of the <\/span>organization<\/span> while lowering <\/span>downside risk.<\/span> While experts agree that i<\/span>nvesting in companies that do well on ESG standards is a comparatively new theme in the Indian market<\/span>, it is only a matter of time before this becomes the norm.<\/span><\/p>\n We are seeing a definite <\/span>green<\/span> shift in the preferences of the Indian consumer a<\/span>fter the global pandemic<\/span>.<\/span> S<\/span>ustainability and health have become important factors <\/span>wh<\/span>en<\/span> making purchase decisions. <\/span>Of the Indian consumers surveyed<\/span> in a <\/span>recent global <\/span>study<\/span>, 78% were willing to change their purchasing <\/span>behaviour<\/span> to reduce a negative impact on the environment. (Source: LiveMint<\/a>) <\/span>Urban Indian consumers are most willing <\/span>to <\/span>do this<\/span>. <\/span>The percentage of respondents is the highest across all countries surveyed.<\/span><\/span>\u00a0<\/span><\/p>\n Moreover<\/span>, Indian consumers are at the leading edge of the shift <\/span>compared to other countries studied, including th<\/span>e <\/span>United States, India, United Kingdom, Canada, Germany, Mexico, Spain, Brazil<\/span>,<\/span> and China<\/span>. <\/span>Across various parameters related to lifestyle choices and shopping <\/span>behaviour<\/span>, those surveyed in India showed higher awareness and concern for sustainable <\/span>alternativ<\/span>es.<\/span> For example<\/span><\/span><\/p>\n This makes it amply clear that the Indian consumer, particularly <\/span>from an urban background<\/span>, is <\/span>increasingly concerned about the global climate crisis<\/span>. If you\u2019re a company <\/span>stepping up <\/span>your <\/span>response to sustainable practices<\/span>, such as <\/span>adopting greater use of renewables in <\/span>your <\/span>supply chain, reducing plastic waste<\/span>,<\/span> and investing in <\/span>ESG outcomes, your consumer will notice. Nowhere is this better illustrated than the study of Indian consumers that reported that <\/span>48% of consumers share an emotional connection with products or organizations that demonstrate eco-friendly qualities.
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<\/p>\nFinancial Performance: <\/span>How the l<\/span>ower <\/span>c<\/span>ost of <\/span>g<\/span>reener <\/span>c<\/span>apital<\/span> is driving ESG decisions<\/span><\/span>\u00a0<\/span><\/h3>\n
Consumer Preferences: The Shift to Green<\/span><\/span>\u00a0<\/span><\/h3>\n
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\nThe shift doesn\u2019t affect the purchase behaviour<\/span> alone.
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