The Remarkable Rise of ESG In India

India as emerging economy India has emerged as one of the growing economies in the world. According to International Monetary Fund (IMF) Indian Economy is anticipated to become the third-largest economy by 2030. The Indian economy has been growing at an average rate of 7% per annum for over a decade now. This growth can be attributed to various factors such as a young population, low labour costs, increasing urbanization, and rising consumption levels. This article briefly describes ESG In India, its Growth, its Implementation of ESG in India, & Companies Act and ESG.

What is ESG

ESG stands for Environment, Social and Governance. It consist of factors for screening and assessing the efforts made by companies toward addressing ESG issues and creating sustainability for stakeholders. It is a way of measuring impact of company’s activities on environment, society and its governance mechanisms.

Companies Act and ESG

The Companies Act, 2013 also promotes social responsibility part of ESG by including provisions for corporate social responsibility activities to be performed by companies. It is not just a mere obligation by law, Investors see corporate social responsibility activities undertaken by the company more than just an obligation. A company with a very harsh corporate social responsibility policy indicates to the investor a high-standard risk management team which recognizes non-financial factors such as reputation, environment efficiency and social license to operate that contribute to a company’s valuation.

Implementation of ESG in India

In 2019 as per the UNICEF India was the 7th most affected country due to climate change Effects of climate change can be seen in form of increased frequency and intensity of heatwaves, severe landslides and floods in north-eastern states, increased chances of drought, fatalities and economic losses. India has started seeing ESG as a major opportunity in this reversing of the climate change and to sustain in the dynamic environment.

• At 26th Conference of parties Prime Minister Modi pledged to achieve 40% decrease in carbon intensity by 2030 and achieving net zero by 2070. 
• The Securities and Exchange Board of India “SEBI” under its Business Responsibility and Sustainability Reporting “BRSR” mandates issued guidelines and the companies listed on Indian stock exchanges are now required to disclose their ESG performance in their annual reports positively. This decision was taken to increase transparency and to encourage companies to adapt to the sustainable practices. Companies that fail to meet these standards may be at risk may have to bear reputational damage and potential financial penalties.
• Numerous government programs to combat climate change has been introduced including Clean Air mission, national electric mobility mission plan, national solar mission, Indian cooling action plan. 
• Union budget 2023 demonstrates efforts to be taken by Indian government towards a sustainable and resilient economy by achieving net zero and sustainable development goals (SDG). 
• Companies Act, 2013 mandates that in pursuant to section 134(3)(m) the board report which is circulated to company shareholders shall include information relating to efforts of company on the conservation of energy.
• Companies that include ESG issues are benefitted in terms of improved risk management and increased access to capital. Data shows that the top performers in terms of 10-year returns are those companies that are ESG compliant and are also sustainable in the environment.
• The SEBI on February 2, 2023 reviewed the framework of Green Debt Securities (“GDS”) and introduced such changes to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 requiring the issuer of any GDS to monitor the operations against sustainability standards disclosed in the offer document.

Growth of ESG in India

The market for ESG information is growing in terms of maturity. The rise of ESG investing could be understood as a proxy for how markets and societies are dynamic in nature. The most crucial challenge for most corporations is to adapt to a new environment that favours smarter, cleaner and healthier products and services. For investors ESG data is incredibly important to identify those companies that are well positioned for the future and are sustainable. In today’s time ESG investing has had that growth to the point where it can greatly quicken market transformation for the better. As corporations and investors experience growing influence and power their actions and decisions affect the future. 

Conclusion

One of India’s significant strengths lies in its service sector that contributes around 55% to its GDP. The IT industry has played a very Important role in driving economic growth in recent years. With rising income levels and changing lifestyles, there is enormous potential for businesses looking to tap into this market.