Beyond compliance: How businesses are turning ESG into a profit powerhouse

Initially driven by regulatory compliance requirements, businesses are increasingly viewing ESG as a tool to enhance profitability. But there is still a long way to go

Ultimately, it all boils down to profit. Today’s business landscape goes beyond profit to emphasise how companies impact the planet and people; at the same time, environmental, social, and governance (ESG) criteria guide businesses to make sustainable and profitable decisions. India Inc. has realised that sustainable practices like ESG can indeed be good for business. A recent SAP Sustainability Survey reveals that 77% of Indian businesses saw sustainability strategies contributing to revenue or profit growth to a moderate or strong degree, while 39% of those surveyed are planning to increase investment in sustainability in the next three years (see graphic ‘Towards a Sustainable Future’).

Markets regulator Securities and Exchange Board of India (Sebi) has been pushing listed firms to furnish detailed ESG reports since 2012; from FY23, the Top 1,000 listed companies by market capitalisation are mandated to provide detailed ESG reports under Sebi’s Business Responsibility and Sustainability Report (BRSR) framework. It also introduced the BRSR Core framework under which companies had to report about their supply chain as well. The Top 250 firms by market cap will have to compile supply chain ESG data in FY25.

“ Indian organisations should use these [ E S G ] regulations as a platform to go further and focus on product-level emissions monitoring and mitigation ”

Manish Prasad
President & MD
SAP Indian Subcontinent

However, some large Indian companies have been voluntarily reporting their ESG performance long before Sebi’s mandate. Take, for instance, biscuits major Britannia Industries. “Building upon over a decade of sustainability efforts, we formalised our ESG initiatives starting from FY21,” says CEO & ED Rajneet Kohli. The company also participates in global ESG ratings like the Carbon Disclosure Project and the Dow Jones Sustainability Index.

Satish Ramchandani
Co-founder & Chief Business Officer
Updapt 

Companies are increasingly viewing ESG reporting as both a regulatory obligation and a strategic approach to future-proof the business. “It’s a combination of both depending upon the management philosophy, P&L benefits and type and size of businesses,” says Satish Ramchandani, Co-founder & Chief Business Officer of Updapt, an ESG tech company. For instance, he adds, there are businesses that are not listed in India but still have an ESG agenda and related teams to drive it for various reasons, including sustainability being a part of their core value system, investor mandate, risk management or “they being a supply chain partner to a large corporate in India or abroad”. Several large upstream value chain partners of listed companies have started adopting BRSR Core requirements as they need to furnish the data to their listed partners from FY25. 

“We believe that sustainable supply chain management is a must for a long-lasting impact and towards this, we have been taking pre-emptive steps, including evaluating our top partners on ESG parameters and assigning ESG Maturity scores, apart from conducting training to build their capabilities and improve ESG awareness,” says Chetna Sharma Baranwal, Vice President & Head-New Initiatives and Sustainability at mobile tower installation major Indus Towers. 

While BRSR mandates the Top 1,000 companies by market cap to furnish ESG data, more than 1,050 companies have reported BRSR data, says Ramnath Iyer, Co-Founder & CEO of Environment Social Governance Data & Solutions (ESGDS), which provides ESG data and analytics tools (see graphic ‘Status Check’). 

Renewed Focus

ESG investing has been gaining traction in India, primarily focussed on environmental sustainability, often driven by regulations and global pressure to combat climate change. Investing in environmental initiatives has helped businesses reduce operational costs, enhance brand reputation, and attract environmentally conscious customers, leading to increased profits. It has also mitigated regulatory risks, driven innovation, and appealed to investors and employees who prioritise corporate responsibility.

While social and governance factors might seem less quantifiable, firms are increasingly recognising their long-term return on investment, say experts. Focussing on the social aspect enhances a firm’s reputation, attracts talent, fosters customer loyalty and appeals to socially responsible investors, they say. Companies today recognise that strong social practices boost employee morale and productivity, differentiate the company in the market and drive sustainable growth. For instance, Britannia has programmes such as providing career guidance to employees’ children aged 13-21 through an outside agency, offering travel support for female employees’ nannies when they travel for work within India (for children under two years), and organising sessions by doctors on preventive medical care. 

Meanwhile, companies with robust governance have been seen to outperform peers in profitability metrics, as such firms mitigate risks, drive operational efficiency, and are positioned for sustained growth, say experts. Focussing on the framework of rules, practices, and processes ensures transparency, accountability, and ethical decision-making. And these factors are essential to build investor confidence and maintain regulatory compliance, they say.

“ India is very much a regulatory / compliance-led - led market. Many companies consider ESG reporting requirements through the regulatory lens ”

 

Inderjeet Singh
Partner
Deloitte India

Agrees Vikash Kumar, Manager-Sustainability at NTPC, India’s leading power generation company. The public sector undertaking has implemented robust corporate ESG management systems (ESGMS), including rigorous risk management systems and compliance mechanisms, he says. Focussing on ESG serves as a valuable tool for enhancing profitability by identifying areas where NTPC can improve efficiency, mitigate risks, and capitalise on emerging opportunities, says Kumar. 

Experts say that fulfilling regulatory requirements is just the beginning. It is critical to go beyond compliance to use ESG data to drive organisational performance, and incorporate this information into decision-making to have a positive impact on the environment, society, and economy. The good thing is that companies have begun to realise that sustainability is a subject that can directly affect their top line and bottom line. “Indian organisations should use these regulations as a platform to go further and focus on product-level emissions monitoring and mitigation,” says Manish Prasad, President & MD, SAP Indian Subcontinent, adding that there is increasing regulatory momentum towards standardising ESG requirements for business. “We are moving toward a plastics tax, and the EU has already instituted CBAM to add charges to carbon-intensive products. These obligations will increasingly affect Indian businesses trading globally.”

The Challenge

Fulfilling regulatory requirements and going beyond compliance requires preparation, awareness and understanding, and visibility of ESG metrics across the value chain and even entire economies. That is easier said than done. ESG reporting remains a complex and challenging task globally. And in India, not many companies choose to publish BRSR  reports voluntarily. “India is very much a regulatory/compliance-led market. Many companies consider ESG reporting, specifically BRSR, Corporate Sustainability Reporting Directive (CSRD), and Carbon Border Adjustment Mechanism (CBAM) requirements through the regulatory lens,” says Inderjeet Singh, Partner at Deloitte India. With Sebi mandating only 1,000 listed companies to provide detailed ESG reports, there is a long way to go in a country with  around 16.3 million registered firms.

Meeting these reporting standards poses significant hurdles, particularly for companies unaccustomed to such comprehensive disclosure requirements. Around the world, companies struggle with the lack of standardised frameworks, varying stakeholder expectations, and the need for accurate, reliable data. In India, the primary challenges in ESG reporting include data collection, standardisation, and integration of ESG metrics into existing systems. This often leads to inconsistencies in data and difficulties in benchmarking. 

Pradeep Panigrahi, Head-Corporate Sustainability at conglomerate L&T, says policies need to be Indianised as sometimes, frameworks/protocols of western countries do not work here. Also, each policy needs to be backed by foolproof guidance documents on all relevant metrics of ESG/BRSR.

To overcome such challenges, diversified conglomerate ITC Ltd has deployed an integrated sustainability data management system to collect, collate and analyse environmental and social data. The system is equipped with strong internal controls to support the underlying integrity and credibility of BRSR disclosures. The data related to environment and social performance, unless otherwise specified in the respective sections, is based on the actual performance of various businesses of the company (including units, hotels and office complexes), subsidiaries, associate firms and third-party manufacturers included in the reporting boundary. 

“ Our company views ESG as a valuable tool for enhancing profitability by identifying areas where we can improve efficiency, mitigate risks, and capitalise on emerging opportunities ”

 

Vikash Kumar
Manager
Sustainability, NTPC

The Way Ahead

Given the challenges companies are facing, Rama Patel, Senior Director and Chief Ratings Officer at CRISIL ESG Ratings & Analytics Ltd, says reporting on non-financial disclosures continues to evolve and regulators worldwide are pushing for standardised, reliable, and transparent disclosures. She adds that to improve the quality of disclosures, companies should invest in strong data collection processes to ensure completeness and consistency of data. As this is an evolving space, investments in skill-building and training of employees on ESG could go a long way in improving disclosures. Even investing in technology and AI- & ML-driven data analytics to enhance ESG data collection, monitoring, analysis and reporting capabilities is crucial. 

Sustainability and ESG considerations are increasingly becoming important factors for not just investors but also customers worldwide, with some even willing to pay a premium for ‘sustainable products’. A study conducted by Bain & Company in 2022 revealed that more than half (52%) of urban Indian consumers anticipate increasing their expenditure on sustainable brands over the next three years. Increasingly, consumers are considering the environmental and social impact of the products they buy. They prefer brands that prioritise sustainability, use eco-friendly materials, minimise waste, and demonstrate a commitment to ethical labour practices and community engagement. As Singh of Deloitte warns, companies that do not prioritise ESG will lose business opportunities to their peers going forward. 

In the pages that follow, find out India Inc.’s progress on the path to sustainability and the challenges ahead.