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The Importance of ESG Framework and Integration into Business

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Two GoI officials recently underscored the significance to integrate ESG into business practices and the significance of an ESG framework.

The two officials are V Anantha Nageswaran, Chief Economic Advisor; and Inderdeep Singh Dhariwal, Joint Secretary, Corporate Affairs Ministry, Government of India. They addressed CXOs at an Indian Institute of Corporate Affairs (IICA) conference recently.

Integrating ESG into Business:

Mr Nageswaran emphasized India’s need for improved ESG practices, citing resistance from international bodies and forums to these measures.

He said that responsible business in India differs from Western interpretations, and urged companies to consider ESG integration into their business practices.

The CEA said that India should prioritize climate adaptation over emission mitigation, as it is not the primary contributor to emissions.

He alleged that developed countries are imposing standards on developing countries after reaching a certain income threshold at national and social level.

He took a dig at global leaders and organization heads for flying private jets to attend climate change or ESG conferences, stating that such behavior undermines credibility.

“In the process of earning the current top line and bottom line if businesses end up destroying the productivity and income earning capacity of today’s younger cohort then down the road it rebounds on businesses in terms of much lower aggregate demand and economic growth. It becomes a lose-lose proposition down the road,” he said.

Mr Nageswaran said that imposing costs on MSMEs may hinder their freedom of operation and global competition, and should be balanced based on national and social context.

The ESG framework:

Mr. Dhariwal said that the government wants to set guidelines for businesses regarding ESG practices, rather than imposing regulations.

According to him, the regulations might need to be sector-specific and different for mining companies and service-oriented businesses.

“We will provide a framework. The companies must contribute to evolve it. It is a trust-based relationship. We are listening to the stakeholders. The requirement has to echo from the source,” he said.


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Inclusive Workforce Must be the Norm

Sonal Desai


Social neglect was once a regular part of our everyday lives. An inclusive workforce can change the social dynamics.

Our social responsibility was mostly relegated to applauding or rewarding philanthropists. As they worked to improve the lives of sex workers, marginalized, socially and economically backward communities, women, and children. Despite criticism from the public, society, and government, unsung heroes steadfastly continued their mission to support the oppressed.

What changed?

Several factors overflowing the dusty files in government lockers tumbled. The increasing number of climate incidents, temperature rise to unbearable levels for both humans and the ecosystem acted as an eye opener. These included climate change, inaction, mass migration, absolute disregard for the Indigenous communities, deforestation, and the affected and the impacted (both people and communities). Plurality was totally at play.

That was, till YOU and I were NOT AT the receiving end.

I received my first lesson on human compassion in 1997-1998 when Mumbai was completely submerged underwater. There were no mobile phones and access to the Internet was limited to the office. Strangers came to the aid of Mumbaiikars wading knee-deep water, braving open manholes, and witnessing crumbling infrastructure.

The tales of human support came in the form of the human chain people formed to ensure safety. I still cannot forget the helpful resturanteur who smilingly allowed me to call my anxious parents and did not accept money for the call. Instead, he offered me food. Similarly, locals offering vada pav to the stranded commuters, and shelter to those stranded, are still fresh in my memory.

That was perhaps, the first climate change incident in Mumbai, followed by the city submerging every monsoon. This is now a part of Mumbaikars’ lives.

Corporate participation back then was limited to donations.

While the on-ground scenario has not changed much today, I see three profound improvements. One and the most important is strangers still refuse to remain bystanders during duress of any kind.

Secondly, regulations and policies now play a key role in the enterprises earmarking a certain percentage of their revenues for the CSR corpus. Thousands have benefitted from these CSR initiatives.

However, as more women, persons with disabilities, and LGBTQ enter the workforce, we are yet to see equal opportunities for this segment of society. A recent report mentions that 40 percent of women face discrimination at work. I shudder to think about the cruel (behind the back, when you think no one is listening) comments pointed toward persons with disabilities and the LGBTQ. Most corporates who have safe workplaces, sexual exploitation, and equal opportunities policies react to incidents.

Can there be a more proactive approach? Can DEI become mainstream, more than just a mention during the corporation’s annual general meeting or a figure in the enterprises’ annual report, integrated report, or ESG submissions?

Our take:

WriteCanvas is a proponent of equality and equal opportunity. While we call for a mindset at the corporate level, we also understand the need for developing the right infrastructure for inclusivity. It is high time that the corporates open their arms wide to employ all eligible employees. But first, they will have to allocate enough funds for infrastructure re-alignment. This Independence Day, let us pledge to make inclusive workforce the new morn.


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India to Establish Domestic Carbon Market Regulations

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Having studied models in Europe and other environmentally conscious nations, India is set to establish regulations for its domestic carbon market in the upcoming months.

Dirk Forrister, President and CEO of the International Emission Trading Association (IETA), confirmed the development. He said, “On the demand side, the strength of the market is to be set by regulations. We don’t know how tough they are but they will be coming out in the coming months and not years away. We are waiting for details as to what the targets would look like, and what flexibility will be affordable.”

Large Indian corporations are actively participating in the carbon market development in India, leveraging their global assets to meet the increasing demand for cleaner products in European markets.

Additionally, the government has identified a set of target areas where foreign investments may consider approving carbon credits for exports into international markets.

Furthermore, the government is working to attract more investments in renewables and energy efficiency programs, while also addressing its power needs and infrastructure requirements.

India has enormous potential to reduce carbon emissions in both natural and industrial production, improving electricity production.

It must be noted that India’s Perform, Achieve, and Trade program is expanding to include heavy industries like steel, chemicals, fertilizers, and power, transforming it into a significant carbon market.


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Regulations Driving SAF Demand: Report

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Regulatory developments are driving the demand for Sustainable Aviation Fuel (SAF), with a total demand of 16.1 Mt (5.3 Bgal) across countries.

This year is crucial for projects aiming to start operations before 2030 due to ongoing challenges in funding, construction, and commissioning, according to SkyNRG’s new Market Outlook report.

Highlights:

The report highlights that SAF capacity increased by 4.0 Mt to 17.3 Mt by 2030, driven by EU, UK, and US regulations, incentives, and voluntary adoption.

Notably, Japan, Singapore, India, Brazil, British Columbia, Indonesia, and Malaysia have developed (proposals for) legislation to drive domestic SAF uptake.

Airlines, cargo companies, and corporate entities are setting ambitious SAF targets, totaling 12 Mt by 2030, demonstrating the strength of voluntary demand signals.

Facilitators:

The market expansion has been significantly facilitated by these purchases, but to meet regulatory requirements, they must now be accompanied by dependable, long-term commitments.

The US federal tax credit’s greenhouse gas methodology has led to a surge in announcements of Alcohol-to-Jet facilities, reaching ~8% of their projected capacity by 2030.

The announced capacity for other technologies, such as Fischer Tropsch and e-SAF, is only about ~7% of the total capacity for 2030.

The HEFA pathway is expected to dominate global capacity announcements, accounting for 85% of capacity in 2030.

Co-processing, despite accounting for a smaller portion of public announcements, is expected to lead to more projects due to its low complexity and favorable economics.

The way forward:

Philippe Lacamp, Chief Executive Officer, SkyNRG, said, “It is encouraging to see the progress being made towards net zero in the report. The Market Outlook also highlights the importance of reliable, long-term policy environments globally to allow for capacity development planning and unlocking of the significant investments needed to enable construction and commissioning of SAF facilities.”

Increased global trade of SAF as a renewable fuel could push for advanced pathways, with regions like China and Brazil aiming to produce renewable fuels, potentially restricting access to UCO, tallow, and palm residue feedstock.

India plans to use 1% SAF for domestic commercial flights by 2025, requiring 140 million liters annually. If raised to 5%, 700 million liters annually.


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SEC Approves Standardized Climate-Related Disclosures

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The Securities and Exchange Commission (SEC) has adopted rules to standardize climate-related disclosures by public companies and in public offerings.

The rules aim to offer investors reliable information on the financial impact of climate-related risks on a company’s operations and risk management. They build on past requirements by mandating material climate risk disclosures by public companies and in public offerings, the SEC said in a press release.

SEC said that the rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. They will also provide specificity on what companies must disclose, which will produce more useful information than what investors see today.

The rules will also require climate risk disclosures to be included in a company’s SEC filings, such as annual reports and registration statements, rather than on company websites, the commission said.


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ESG Dynamics Changing in the US

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The environment, social and governance or ESG dynamics are changing in the US!

As the ESG frameworks get more complex, more and more enterprises are turning to experts for help. 

More so—US companies bear the brunt from consumers, communities, investors, market demand, and global mandates. 

Investors and financial services companies are driving the demand for ESG services among organizations. The change in ESG dynamics is a result of their realization of the connection between reducing ESG risk and raising market value. 

A 2023 ISG Provider Lens Sustainability and ESG report predicts significant growth in US enterprise investments in sustainability and ESG initiatives. 

The authors note that many businesses don’t record or store ESG data. While demand for these services is lower in the US as compared to Europe, factors like investor preferences, consumer purchasing behavior, and geopolitics are changing the ESG dynamics. Businesses across all regions are exposed to risks such as regulations, reputational damage, increased capital expenses, and weather-related asset damage. 

The authors note that investors and financial services firms are driving the demand for ESG services. The organization’s realization of the link between lowering ESG risk and increasing market value is what is causing the change in ESG dynamics. Nonetheless, legal actions taken against financial institutions that select assets by ESG guidelines could obstruct US economic expansion, they caution.

Companies operating in the US may be required by upcoming federal and state laws to reveal hundreds of data points about emissions, decarbonization, and risks associated with climate change.

 More regulatory bodies around the world require businesses to disclose and improve their ESG performance. It is becoming more challenging for these companies to locate and obtain the necessary ratings and benchmarks. In addition to environmental performance, which has traditionally been the primary focus of evaluations, social and governance aspects are now often included. In response to these challenges, the number of rating and benchmarking services available globally is rapidly expanding, the authors wrote.

According to Andy Miears, Director,  Adaptive Organization, ISG, “US companies know they need to improve their sustainability and ESG performance but face increasing complexity at every turn.” 

Jan Erik Aase, Partner and Global Leader, ISG Provider Lens Research, said, “New regulations will significantly increase the data collection and reporting burden on U.S. companies, driving demand for services to help them comply. A lot of businesses today either don’t record this data at all or store it in different systems.”

 


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Why Should Companies Prepare a Sustainability Report?

Renjini Liza Varghese


Globally, the pace of climate action is accelerating. More countries are enacting and embracing green mandates and tightening regulations. This pushes companies to reassess their operations and ensure their products meet evolving sustainability standards.

In this context, the value of a sustainability report gains traction. These reports serve as vital tools for companies to navigate the green landscape.

The conversations about the suitability report with industry stakeholders reveal new facts, that are sometimes eye-openers.

For instance, in the past few months, I have come across many interesting facts regarding the sustainability initiatives of large and mid-size organizations. Basis the companies’ sustainability initiatives and my observations, I am bracketing those into three key categories.

The three key categories:

Laid-back approach: These companies implemented sustainable practices early on but haven’t documented the impact, or claimed carbon credits, leaving potential value untapped.

The greenwashing dodger: Companies seeking easy shortcuts and using “greenwashing practices” as tightened regulations are sometimes a challenge.

Uninformed exporters: Many Indian MSMEs and SMBs, particularly exporters, are unaware of the changing global regulatory landscape, putting them at risk of being left behind.

Several survey reports have highlighted the above-mentioned reasons why Indian companies have missed out on crucial deals. Except for the top 1000 listed companies (by market capitalization), creating a sustainability or ESG report is not mandatory in the country. All the same, with increasing awareness, the time is right for companies to develop a sustainability report.

Let me list the 5 compelling benefits of creating a sustainability report.

1. Identify gaps and opportunities: A report acts as a mirror, reflecting your environmental, social, and governance (ESG) performance and helps set goals for future progress.

2. Future-proofing: Even if your company isn’t currently subject to ESG (Environmental, Social, and Governance) reporting regulations, an annual sustainability report makes future ESG reporting easier.

3. Carbon credits: By quantifying your environmental impact, you unlock the potential to claim valuable carbon credits, leading to financial benefits and compliance with some environmental regulations.

4. Transparency and trust: Openly communicating your sustainability effort fosters trust and strengthens relationships with stakeholders, including investors, customers, and employees.

5. Brand image and reputation: In today’s conscious consumer market, a strong sustainability report can significantly boost your brand image and attract environmentally conscious customers.

So, creating a sustainability report is no longer optional. It’s a strategic investment that unlocks numerous benefits, regardless of your company’s size or current regulatory obligations. This can secure a competitive edge for the companies and also unlock a multitude of benefits.

 


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