ESG (Environmental, Social, and Governance) imperatives have gained significant importance in recent years, not only globally but also in India. Entrepreneurs in India are increasingly contemplating the need to incorporate ESG principles into their business strategies to drive sustainable growth, promote employee welfare, mitigate risks, and meet the evolving expectations of stakeholders.
With the changing business landscape, it becomes essential to understand the importance of ESG in the decision-making process of businesses.
- Responsible Investment: Entrepreneurs seeking funding should recognize that ESG considerations are increasingly integrated into investment decisions. They should align their business models and strategies with ESG principles to attract impact investors, venture capitalists, and financial institutions that prioritize sustainable development.
- Responsible Supply Chain: The top public companies have already been mandated by SEBI to report on their ESG initiatives and this will extend to the supply chain including vendors, suppliers, and partners. Startups and entrepreneurs who are part of this extended chain will eventually have to comply with the ESG imperatives and starting early will help them stay ahead of the race.
- Responsible Employer: Entrepreneurs must consider the social impact of their businesses and strive to create positive change in society. This includes fostering diversity and inclusion within their organizations, promoting fair labour practices, and ensuring the health and safety of their employees.
- Responsible Business: Entrepreneurs can contribute to social development by supporting local communities, investing in education, healthcare, and other social welfare initiatives promoting corporate social responsibility.
Entrepreneurs can look at many ways to encourage the early adoption of ESG considerations in their business roadmap, such as:
Innovation and Technology:
Entrepreneurs in India should leverage innovation and technology to drive sustainable solutions. By developing and adopting innovative products, services, and processes, entrepreneurs can address societal and environmental challenges effectively. For example, embracing clean technologies, digitalization, and circular economy models can lead to increased resource efficiency, reduced waste, and increased profitability.
Entrepreneurs must actively engage with their stakeholders, including employees, customers, investors, and communities. By understanding their needs and concerns, entrepreneurs can better align their business strategies with stakeholder expectations. Regular communication and dialogue can help build trust, foster loyalty, and gain valuable insights that contribute to the long-term success of the business.
Reporting and Transparency:
Transparent reporting on ESG performance is essential to demonstrate accountability and attract socially responsible investors. Entrepreneurs should track and measure ESG metrics by adopting internationally recognized frameworks, such as those proposed by the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB), or refer Indian reporting frameworks such as Business Responsibility and Sustainability Reporting (BRSR) by SEBI to disclose their ESG practices and performance. Accurate and comprehensive reporting enhances credibility and helps stakeholders make informed decisions.
Robust corporate governance practices are crucial for sustainable business growth and building trust among stakeholders. Entrepreneurs should establish transparent and accountable governance structures, including independent boards, effective risk management systems, and ethical business practices. By maintaining high standards of corporate governance, entrepreneurs can attract investors, build strong partnerships, and mitigate reputational risks.
Entrepreneurs are faced with the challenges of balancing the efforts towards building soonicorns/unicorns with the available resources. They may be sceptical in terms of the cost benefit ratio of deploying both financial and human resources to accomplish ESG objectives vis-à-vis other priorities. Also, in case of failure to meet any desired objectives such as clean energy, they may also face the negative implications of such decisions.
However, early adoption of ESG considerations will help them gain confidence of various stakeholders such as investors, employees, society, consumers, and others having vested interest in the business. This will help them to attract better investments, better talent, mitigate risks, gain additional revenue opportunities, and promote overall corporate governance.
Views expressed above are the author’s own.
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