- Environmental Social Governance (ESG) is gaining traction as an important strategy and is leading to optimization of business processes
New Delhi, 3 August 2021: Integration of environmental, social and governance (ESG) aspects in the business will help in long-term value creation, thereby decreasing risk factors rising from national and global factors, says EY report ‘Can ESG help future proof your business?'
The Indian economy is going through a phase of uncertainty coupled by amplification of several natural and social disruption making Indian companies rethink their business strategy. The COVID-19 pandemic has been instrumental in reinforcing 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, helping in long-term value creation.
Chaitanya Kalia, Partner and Leader, Climate Change and Sustainability Services (CCaSS), EY India said, “In an increasingly uncertain and volatile world that is throwing up new challenges for the businesses, ESG provides a framework for businesses for staying resilient by holistically safeguarding people, the planet and profits. ESG is the tool that categorizes aspects that were conventionally associated with sustainability and corporate responsibility but have material financial impact on the organization’s short and/or long-term value.”
Shailesh Tyagi, Partner, Climate Change and Sustainability Services (CCaSS), EY India added, “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 highlight the importance of ESG in businesses. Integration of ESG into business models is an absolute must for building in resilience and future proofing businesses from further shocks. Indian companies are realizing the need to gear up against the ongoing challenges and the ones that future hold.”
The report highlights the importance of ESG as a framework for businesses for staying resilient by holistically safeguarding profits, people, and the planet. A well-developed ESG governance in business helps gauge the risks and issues that may not have been possible through conventional mechanisms.
The report further highlights the importance of long-term value creation through total value method. Total Value is a concept that allows companies to measure the most material aspects of their value creation, which otherwise go hidden or unmeasured. Further, total value methodology takes an integrated approach of profit and loss and monetizes non-monetary parameters in calculation. As a result, the risk and opportunities that arise due to external issues can be internalized with the integrated profit and loss approach. With this approach, decision-making is improved for a company creating positive impacts for both stakeholders and society at large.
Findings from the recent EY’s Global Investor Survey, covering views of ~ 300 institutional investors on ESG performance, show a clear trend towards increasing integration of sustainability or non-financial factors in investment decisions making ESG integration a tool that will pave way for future proofing of business.
On the global front (as indicated by World Economic Forum), over the past decade, the top five global risks have shifted from economic to environmental and social issues. The top five risks of the decade that can majorly impact the society includes: infectious diseases, climate action failure, weapons of mass destruction, biodiversity loss and natural resource crisis. The likelihood of the extreme weather, climate action failure. human environmental damage, infectious diseases and biodiversity loss becoming a reality is increasing day by day.
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