How ESG Is Shaping Resilience In A Multi-Transition Economy

Environmental, Social and Governance (ESG) were once viewed primarily through a governance lens. Today, it has evolved into a broader strategic move that shapes competitiveness, resilience and capital allocation.

In this age of ESG, the question of how enterprises compete, allocate capital and create resilience in an economy in flux is what truly matters. Governments, investors and lenders are already factoring these issues into policy frameworks, financing decisions and capital allocation, making it increasingly difficult for businesses to ignore them.

In India, emerging developments such as the proposed Climate Finance Taxonomy and the Reserve Bank of India’s draft guidance on climate-related financial risk disclosures are reinforcing this shift. These signal how in today’s multi-transition economy, the winners are companies that develop optionality. This is the ability to anticipate, price and pivot, and be better positioned to succeed.

Six Transitions Shaping Enterprise Value

In today’s economy, carbon transition risk is widely recognised. The shift in capital expenditure, changing carbon pricing, stranded asset risk and sector rotations have become staples of boardroom discussions. Yet, there is more to India’s competitiveness in the ESG landscape than just carbon.

First, we observe a growing incidence of climate-related physical events, such as heatwaves, floods, droughts and storms. Physical climate shocks are fast becoming a serious business risk, affecting facilities, logistics, supplier networks and workforce productivity across sectors.

Second, water stress is increasing. High to extremely-high baseline water stress, coupled with increased variability in water flows, affects decisions, permits supplier selection and access to finance. Basin-scale water diagnostics impact decision-making. Simultaneously, circularity and waste management have become important in enterprise strategy with an emphasis on water reuse and recycling.

As climate pressures intensify, air pollution is emerging as a business risk. Talent acquisition, retention and workforce productivity depend on air quality levels in urban environments.

Natural capital and biodiversity conservation are other important aspects. Under the Kunming-Montreal Global Biodiversity Framework, signatories have pledged to conserve 30 percent of terrestrial and marine areas by 2030, while incorporating rights-based safeguards. This significantly affects project development, permits, offsets and sourcing in infrastructure, energy and mining sectors.

Finally, enterprises lacking sound policies on labour rights and human rights are increasingly exposed to reputational risks. This is because financial regulators are mainstreaming climate and transition risks into corporate governance, strategy, risk management and disclosure practices. To compete effectively, enterprises must price these vectors early in their strategy and capital allocation.

This transformation has begun in some organisations. Leading businesses around the world are rebuilding their corporate structures, weeding out those that have transitioned from traditional models.

Finance Is Pricing Multi-Capital Performance

Globally, the focus for capital markets is shifting away from output-oriented assessment of business performance towards impact-driven valuation.

Enterprises operate in a multi-capital setting, where financial performance is evaluated alongside climate, nature and just transition considerations, requiring the discipline of measuring and managing multiple capitals

Leading asset owners, lenders and supervisors are integrating climate and nature risks into governance, analytics, engagement and supervision. Water stress, biodiversity exposure, air quality impacts and social licence are reflected in portfolio risk assessments, engagement priorities and the cost of capital.

For corporates, this means that Mergers and Acquisitions (M&A) screens, financing terms and investor expectations now extend well beyond CO₂.

Capital Discipline Extends To Climate Conflicts

India’s proposed Climate Finance Taxonomy seeks to classify activities that support climate and transition objectives, align with the country’s net-zero target for 2070 and reduce greenwashing risks. The sectors covered include energy and transportation, agriculture, water infrastructure and carbon-intensive sectors.

Draft climate risk frameworks for banks and other regulated financial institutions are seeking to incorporate climate considerations into their credit assessment, underwriting and pricing processes. Governance, strategy, risk management and disclosure aligned with international standards are becoming a minimum requirement.

When developing an ESG strategy, environmental and social conflicts are often overlooked. Land disputes, water conflicts, pollution concerns and a lack of community consent have repeatedly led to business interruptions, shutdowns, legal disputes and even the destruction of shareholder value.

Together, these signals point towards differential financing costs based on the credibility of enterprise-level transition plans and the ability to manage material environmental and social risks.

A Practical Playbook For Leaders

Enterprises can take several practical steps to position themselves in this landscape better. From Scope 1–3 greenhouse gas emissions to water stress, air quality constraints to biodiversity loss, companies must assess their potential exposure to workforce and community effects.

Further, companies are increasingly valuing natural capital. A leading Indian IT services company, for example, conducts annual natural capital assessments and includes them in its reporting.

Organisations need to ensure alignment with India’s policy trajectory, ensuring that projects are taxonomy- and bank-ready. Finally, enterprises should develop robust conflict management policies from the outset, using consent, dispute-resolution and benefit-sharing mechanisms to prevent erosion of the timeline and net present value.

The Bottom Line

While ESG may remain a strategic imperative, in today’s multi-transition environment, value creation goes well beyond mere disclosure.

Offering optionality, aligning capital allocation with policy direction, integrating natural capital considerations into investment decisions and preventing social conflict are ways in which ESG creates core value for shareholders, stakeholders and systems.

(This article is authored by Shailesh Tyagi, Partner, Sustainability and Climate Leader at Deloitte South Asia; and Anupam Ravi, Chief Commercial Officer at GIST Impact. Views expressed are personal)