How ESG factors can help future proof Indian businesses

Environmental Social Governance (ESG) is gaining traction as an important strategy for long-term value creation of businesses.

The Indian business scenario is going through a phase of uncertainty coupled by amplification of several natural and social disruption making Indian businesses to rethink their strategy. ESG as a concept is evolving in creating long term value for all the stakeholders. The COVID-19 pandemic has reinforced the importance of ESG framework as a key approach to long term business resilience. Businesses are thinking to go beyond non-financial reporting and start reporting in an integrated profit and loss approach, which attempts to correlate or monetize the positive and negative impact of business operations and products through a range of capitals, thus helping in long-term value creation.

What is shaping the post-COVID scenario?

The COVID-19 pandemic has acted as a strong trigger to reshape global economies and how businesses operate. By exposing the fragility of the current businesses and economic models, it has forced the world to hit the reset button and think. Future proofing of business by enhancing business resilience is what business are looking at presently.

If we look at the top five Global Risks as depicted by World Economic Forum, the top five risks have shifted from economic focus to environmental and societal focus. In the recent period, cyclones, earthquakes and other alarming natural calamities indicate that focusing on economic risks is not just enough. To future proof business against uncertainty, ESG risk evaluation is equally important.

How can ESG deliver long-term value?

In this global phase of transformation coupled by volatility and uncertainty for the businesses, ESG framework provides businesses long term value by holistically safeguarding profits, people and the planet. Imbibing ESG factors into business therefore becomes necessary as it goes beyond corporate responsibilities and focus on holistic material issues to build resilience in short medium and long term.  These aspects vary basis the industry of operation, business model, geography, scale of operations, supply chain, investor base, core values and business strategy of the organization.

Creating a long-term value goes much beyond mere financial profit and loss but we need to look at the bigger picture. Integrating non-tangible factors and measuring the impact created helps in future proofing of business with respect to the risk that cannot often be measured. Therefore, companies are moving from non-financial reporting to integrated profit loss statement which attempts to correlate or monetize the positive and negative impacts of the business operations and products through a range of capitals.

EY total value approach

To support such efforts of organizations, move towards integrated value statements, EY has developed the Total Value approach to address this need and measure the value created by the company, the value it shares with its stakeholders and the broader impact of the company on society at large. A Total Value analysis provides insights on the monetized impacts, outcomes and their materiality.