How is the Government driving ESG?

{This is the third part in my series of posts around “Why am I bullish about ESG?”. In the first part, I explained how customers are pushing for ESG initiatives. In the 2nd post, I covered investors and lenders. In this part, I talk about the role of government agencies.}

Government:- There is no denying it. Governments and regulatory activities have been the largest driver of change, when it comes to sustainability.?

The first United Nations Framework Convention on Climate Change took place in 1992.? The UN General Assembly formulated 17 Sustainable Development Goals (SDGs) in 2015.?

The EU has been pushing ESG-related regulations very aggressively. Their commitment is to reduce net greenhouse-gas emissions by at least 55% from 1990 levels by 2030. The other goal commits the bloc to achieving climate neutrality by 2050.

Firms that fail to take ESG seriously face a bleak future in the European Union, says EU Financial Services Commissioner Mairead McGuinness. Now that’s as in-your-face a message as anyone can get.?

Organizations are scrambling their net-zero plans together, defining the roadmaps, getting themselves rated through agencies, and so on. In fact, ESG reporting is no longer optional in the EU - it is mandatory.?

The US set a goal to reduce emissions by 50% to 52% from 2005 levels by 2030. The US aims to make the federal government carbon-neutral by 2050. Private sector regulations are evolving. In October 2023, California became the first state to mandate climate risk disclosures aligned with the TCFD framework and Scopes 1–3 emissions disclosures for all entities doing business in the state and whose revenues exceed a certain threshold. The trend is unmistakable…all businesses would need to tighten their ESG belts.

In India, top 1000 listed companies are mandated, as per the BRSR (Business Responsibility and Sustainability Report) framework, to report their ESG activities, as part of their financial report. The assurance angle, or a third-party verification of claims, as promoted by the BRSR Core amendment, is a good step. It will reduce, if not eliminate, incidents of fraud and greenwashing.?

Given this is simply the beginning of the regulatory activities in India, frameworks are broadly defined, and there is a high level of flexibility on the company’s part to share as much (or as little) detail as they want. As an example, within the real estate industry, look at the BRSR report of DLF and Godrej Properties. The disclosure by Godrej Properties is far higher than DLF.?

One great step from the Indian Government has been the regulation around Extended Producer Responsibility (EPR). As per EPR guidelines, companies have to be conscious of the kind of materials they use and ensure a high level of recycling. Multiple online portals have popped up, allowing companies to buy these EPR credits / certificates from recycling companies. In fact, the government is planning to launch its own portal to streamline this. This gives a major boost to circular economy activities, which is so core to ESG.

The biggest step from the Indian Government was the Panchamrit declaration around COP26. We have put our stake in the ground out there, committing to serious climate action. Now we need tactical roadmap, specific programs, incentives (and penal measures) coming out, to ensure we meet these goals.

Overall, around the world, we will see better disclosures, stiffer targets, and stricter regulations in the coming years.