Times are evolving. With each passing day, conscious consumerism is becoming ever more important. Gone are the days wherein the only important milestone that mattered to an investor was the steady increase in the company’s profit. With climate change actively forcing us to rethink the way we conduct business, many companies have responded by announcing net-zero or carbon-neutral commitments by pledging to reduce greenhouse gas emissions and investing in climate action. With a rapidly growing demand for climate action amongst consumers, adopting Environmental, Social and Governance (ESG) measures are now more important than ever for businesses of all sizes to thrive in the present and create a sustainable future.
Environmental, Social and Governance matters of any business are interlinked with each other, and with the effects of the current Covid-19 pandemic, ESG, rightfully so, now plays a very important role from the standpoint of investors, policymakers and other key stakeholders. This is simple: it is a modern, reliable and thorough way to safeguard businesses from future risks.
Simply put, the ‘E’ in ESG focuses on the impact of resource consumption of any business on the environment. This could be a carbon footprint, wastewater discharge, and other environment-impacting activities. The Social criterion looks at how a business interacts with the communities where it operates. It also concerns itself with internal policies related to labour, diversity, and inclusion. The Governance aspect of ESG relates to internal practices and policies that lead to effective decision-making and legal compliance.
The effect of ESG is that it facilitates top-line growth in the long run, attracts talent, reduces costs, and, most importantly, it solidifies a sense of trust among consumers. The reasons behind its importance cannot be underestimated in this day and age. Our society no longer depends solely on the government; there is also a huge amount of reliance on well-oiled businesses that meet all their needs, be it employment creation, equitable growth, protection of natural resources and safeguarding consumer interests. Given the unforeseen risks of a pandemic and the climate crisis and its impact on the global economy, many investors and policymakers realise a greater need to accelerate investments in and progress ofbusinesses which prioritise ESG.
Considering all of this, it is not hard to see why investors are increasingly considering sustainable, responsible and ethical practices when assessing corporate performance and risk. Even for banks and the non-banking financial sector, neglecting ESG risk as part of their credit appraisal process is becoming hard to value and mitigate the risk, price it, and suitably adjust loans. More than that, beyond the financial aspect of it, ESG is now considered critical in building an organisation’s public image, making it an attractive investment destination and increasing access to ESG-focused capital.
Closer home, the effects of ESG measures are plain to see. The Business Responsibility and Sustainability Reporting (BRSR) aims to link a business’ financial results with its ESG. SEBI has mandated that BRSR will apply to the top 1000 listed entities, and this would make it easier for evaluation by investors.
It is important to note here that the Reserve Bank of India joined The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) back in April 2021, which is a milestone event as it is likely to support India in its efforts towards policy formation and building a climate risk-resilience in the financial sector.
There are big changes to the Indian automotive sector, too, with regard to ESG. Positive changes in the electric vehicle policies coupled with rising fuel costs, supplemented by significantly lower running and maintenance costs spread over the lifetime of the electric vehicle, have ensured that EVs are witnessing a huge uptick in adoption rates across India.
It must be added that several auto manufacturers have, rather quickly, rolled out electric vehicles, which, despite a higher sticker price compared to their combustion-engine counterparts, have been lapped up by consumers. Hero Electric has been at the forefront of this revolution for well over a decade now with the simple aim of proving that high-quality electric two-wheelers do not have to cost much more than their internal combustion-engine counterparts and that the benefits of going electric are not simply restricted to saving on fuel costs.
From an environmental standpoint, early acceptance and adoption of this technology will set the ball rolling, enable a large, pan-India charging network, and spur further growth, especially in the energy generation sector. Eventually, from the manufacture of EVs, the charging infrastructure, or the EVs themselves, pollution levels from such vehicles will be close to zero.
To accelerate EV adoption, we will need to set up battery manufacturing facilities in India. In that regard, there has been a very good response to the government’s PLI scheme on advanced chemistry cell batteries. The optimism is high for India to start producing batteries in as little as 18 months. Even the ₹76,000 crore incentive for semiconductor localisation is a very good start and will prompt companies to come to India with this governmental support for setting up manufacturing in the country. The demand has already been there, and when we consider EVs, the penetration is less than 5% of the overall market. Considering that, there is still massive room for growth in the consumption of semiconductor chips in the automotive sector.
Going forward, India, much like the rest of the world, will need to strike the right balance of an aggressive push towards growth on the one hand, all the while keeping a check on sustainability via ESG measures on the other. This tightrope walk will ensure manufacturers that blend innovation and mindfulness will emerge and establish a future-proof organisation. Businesses will have to evolve not only to be profitable but also to be mindful of their carbon footprint. The end goal has been clearly defined; all that is left now is to thread our way as responsibly and sustainably as possible to that goal.
I truly believe that the future is electric, bright and green!
Naveen Munjal
Managing Director of Hero Electric Vehicle Pvt Ltd