ESG Will Be Intrinsically Linked With Your Business In 2023-Akanksha Sharma, Global ESG Head, STL.

The way businesses tackle sustainability has changed significantly during the past ten years. Long-term thinking and the integration of sustainability into business operations are becoming widely recognized. 2022 was a year in which we delivered a checkered performance on the Environmental, Social, and Governance fronts. However, the consensus at COP27 to financially support vulnerable nations at climatic odds, and the EU’s firm stand on Greenwashing indicate collective aspiration to build back better. This puts the onus on institutions, both public and private, to step up their ESG game and deliver sustainably at scale.

Sustainability reporting as a strategic necessity

The state of sustainability reporting among the world’s top 250 companies stands at an impressive 96 per cent. The shift has been driven by the ever-increasing demand from investors and consumers for their brands to be sustainable. This is coupled with unprecedented regulatory action in leading economies. For instance, in March 2021 Sustainable Finance Disclosure Regulation was applied across the EU, and the new CSRD (Corporate Sustainability Reporting Directive) is expected to radically broaden the scope of reporting for businesses in the region and beyond. Further, the US SEC mandated a corporate disclosure of GHG emissions. The trend indicates that 2023 would witness much more defined sustainability reporting requirements. The development would help consolidate the ESG reporting landscape, enabling companies to pursue globally standardized disclosure frameworks.

Climate resilience as central to business continuity

The need for dedicated climate action cannot be over-emphasized. This is not just in terms of transitioning to renewables, but also driving energy and resource efficiencies, waste management and promoting circularity. Climatic events will continue to be a key risk to watch in 2023, but action on this front is increasing as well. Over 4,000 companies and financial institutions are working with the science-based targets initiative that are aligned with net-zero emission goals. We will therefore see increasing efforts that include climate risk identification, contingency planning, fostering a localized supplier base, water positivity, and low-carbon operations among others.

Ethical and inclusive work culture as a bulwark against social disruptions

Communities at the grassroots level have been worst hit by the socio-economic events of the last few years. However, the focus on human rights and fair labour practices is also seeing an upward trend: the European Union adopted the Corporate Social Responsibility Directive in 2022, SEBI has mandated the Business Responsibility and Sustainability Report with dedicated Human Rights metrics to be reported among other criteria by listed entities from financial year 2023 onward. As such disclosures are being embraced by countries globally, ethical labour practices and inclusive work cultures are becoming increasingly imperative. They are no longer a good to have, but a need to have.

Businesses should therefore consider fair wage practices and ramp up occupational health and safety as a strategic priority for employees, as well as off-roll and contract staff. They should continuously strive to uplift the conditions of workers across their value chain. Also, the Diversity, Equity, and Inclusion (DEI) posture of businesses will be a clear differentiator, segregating sustainable businesses from those that are not.

Digital as operational leverage Digital technologies have the potential to reduce GHG emissions by up to 20% by 2050. Coupled with data, digital technologies like AI/ML, IoT, and Robotics can help forecast the socio-environmental implications of business operations, probe possibilities, promote better coordination, and ensure the on-time delivery of projects, optimizing energy and resource usages. Further, due to its focus on optimization and efficiency by design, the cloud provides businesses with an excellent platform to manage workloads affordably, share resources, and operate sustainably.

The world is currently at a crossroads caused by escalating investor and customer demands and expanding regulatory intervention. Considering the outlook into 2023 and beyond, as the most trusted institutions, businesses are going to be expected to step up. They will need to take on challenges beyond profit maximization, and look to support sustainable and scalable transformation through their operations and in communities. Therefore, more than ever in 2023, successfully embarking on the ESG ambitions and delivering a net-positive impact will define corporate existence.

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