From Compliance to Commitment: ESG Challenges in India

India, like many other countries, faces several challenges when it comes to the adoption of Environmental, Social, and Governance (ESG) principles.?

These challenges arise from a combination of regulatory, economic, cultural, and infrastructural factors.?

Here are some of the key ESG adoption challenges in India:

• Lack of Awareness and Education?

Many businesses in India still need to be made aware of the importance of ESG or how to implement ESG practices. There is a need for more education and awareness about ESG among businesses and investors.

While prominent and progressive business houses often possess knowledge and expertise in ESG matters, the subsequent tiers need to fill in various areas, including board-level awareness and implementation skills. Accessing a pool of qualified ESG professionals remains a significant challenge.

ESG is a complex and evolving field that requires multidisciplinary expertise and knowledge. There is a growing demand for ESG professionals in India, but the supply is relatively low. The Indian education system is in its nascent sustainability and ESG education stages.?

There is a need to develop and nurture talent in ESG domains, such as sustainability reporting, ESG strategy, ESG risk management, ESG due diligence etc. So, some more time is still required to have an adequate number of ‘competent’ ESG resources at different levels.

• Integration with Business Strategy

Companies often need help aligning ESG principles with their core business strategies, resulting in unproductive ESG efforts that fail to yield value and sustainability. These unproductive activities for ESG lead to high costs and no-return situations.

Alignment between ESG goals and overall business objectives can help progress.

• Short-Term Focus

Many Indian businesses still prioritize short-term financial gains over long-term sustainability. Shifting the corporate mindset from short-term profit maximization to sustainable value creation is a significant challenge. Many of them are not yet aware of the importance of ESG or how to implement ESG practices.

This situation is more prevalent in mid and small-size companies and family-owned businesses.

• Data Quality and Availability

Collecting reliable and accurate data is required to report on key material issues. Data is an integral aspect of ESG reporting, as it helps to measure and communicate ESG performance and impacts.?

Many Indian companies face challenges in collecting reliable, consistent, and comparable data on ESG indicators due to a lack of systems, processes, and standards. Reliable ESG data can be scarce, making it challenging for companies to measure and report their ESG performance.

To start with, relevant and appropriate reporting standards, material issues, and good data collection practices can be adopted by the companies.

• Inappropriate or inadequate Materiality Assessment

Companies can start by identifying the appropriate material issues that are most relevant to their stakeholders. ESG issues vary across industries and geographies and require a thorough understanding of the context and expectations of different stakeholder groups, such as customers, employees, investors, regulators, etc.

• Regulatory Fragmentation:?

While SEBI's mandate for the top 1000 listed companies to disclose ESG reports is a positive step, there's still a lack of uniform ESG regulations in India. Harmonizing these regulations and establishing clear reporting frameworks is essential.

Organizations not listed with SEBI or out of this top 1000 list find it difficult to know what is expected of them regarding ESG compliance.

• Absorbing ESG-related costs

ESG adoption requires investments on certain fronts. There are a number of upfront costs associated with ESG adoption, such as the cost of data collection, reporting, certification, infrastructure development, technology adoption, training, compliance, etc. This investment can be a burden for small and mid-size businesses that are already struggling with the different kinds of adverse economic impacts. They may lack the resources and expertise needed to implement ESG practices effectively.

Moreover, the benefits of ESG adoption may take time to be visible or quantifiable, which can affect the business case for ESG initiatives.

• Cultural and Social Factors:

Traditional business practices and cultural norms can sometimes hinder ESG adoption. For example, gender diversity and labor rights issues, wellness issues, transparency, and disclosures may face resistance in specific industries.

• Complex and Underprepared Supply Chains:?

For businesses with extensive supply chains, ensuring ESG compliance and sustainability standards across the entire chain can be very challenging. This is particularly true when the company deals with multiple suppliers at various levels of maturity in terms of responsible business.

• Inclination towards Greenwashing:?

There's a risk of companies engaging in “greenwashing,” where they exaggerate their ESG efforts without substantial action. False or misleading claims about their ESG performance may lead to a loss of brand image in the future, and they get “no real benefit” from the money spent on greenwashing. This can make it difficult for investors and consumers to trust ESG claims.

Ensuring transparency and accountability in reporting is essential to mitigate this concern.

These are some of the main challenges that hinder the widespread adoption of ESG in India. Despite these challenges, there is a growing interest in ESG adoption in India.?

Businesses are increasingly realizing the importance of ESG and the benefits that it can bring, such as improved reputation, risk mitigation, and access to capital. As ESG awareness and adoption continue to grow in India, the challenges that businesses face are likely to diminish.

The other side of the story - Opportunities

Every risk comes with opportunities. So there are also opportunities and incentives for businesses to overcome these challenges and embrace ESG as a strategic priority.?

The adoption of ESG practices would bring the following advantages to Indian industries:

• Aligning with the national and global goals and frameworks on sustainable development, such as the Sustainable Development Goals (SDGs), the Paris Agreement on climate change, etc.
• Access to Green Finance - attracting and retaining investors, customers, and employees who are increasingly conscious and demanding of ESG performance and disclosure.
• Enhancing innovation, efficiency, and resilience by adopting best practices and technologies that reduce environmental and social impacts and improve governance standards.
• Creating positive value for society and the environment by addressing the pressing issues and needs of the communities and stakeholders, and thus improving the brand value.

So, how do we overcome the challenges?

Here are some of the ways that businesses can overcome the challenges of ESG adoption in India:

• Set clear ESG goals: Businesses should start by setting clear ESG goals that are aligned with their business strategy. These goals should be specific, measurable, achievable, relevant, and time-bound.
• Develop an ESG strategy: Once the goals have been set, businesses need to develop an ESG strategy that outlines how they will achieve their goals. This strategy should include a plan for data collection, reporting, and measurement.
• Get buy-in from stakeholders: It is important to get buy-in from all stakeholders, including employees, customers, investors, and suppliers. This will help to ensure that everyone is on board with the ESG transformation journey.
• Invest in ESG training and capacity building processes: Businesses need to invest in ESG training for their employees. This will help to ensure that everyone understands the importance of ESG and how to implement ESG practices.
• Partner with ESG experts: Businesses can partner with ESG consulting firms to help them with ESG adoption. These experts can provide guidance and support on ESG best practices.

By overcoming the challenges of ESG adoption, businesses in India can position themselves for long-term success.

Integrate sustainable practices with our expert-guided Environmental & Social Management System ESMS and Environmental Management System - EMS Consulting solutions.

Ensure compliance, mitigate risks, and drive long-term value—partner with Consultivo for customised sustainability strategies today!