The environmental, social and governance (ESG) framework has evolved over decades from being a niche concern about ethical investing and corporate social responsibility (CSR) to a mainstream mission, shaping businesses and investment flows. The evolution has broadly traversed three phases.
Evolving Over Time
The 1960s and 1970s were marked by socially-responsible investing that focused on human rights, environmental protection and traditional financial metrics. Alongside, the concept of CSR gained ground as companies recognised their societal and environmental impact and focused on employee rights, community engagement and environmental stewardship.
The 2004 UN report Who Cares Wins brought together ESG factors under a single umbrella, establishing a standardised understanding and measurement of ESG implementation.
As institutional investors recognised the financial implications of ESG factors, they integrated its principles into investment decisions. The late 1990s and early 2000s saw the launch of indexes enabling investors to track and benchmark corporate ESG performance and establishing it as a mainstream business priority.
Cut to the present, ESG is a core element of business strategy and investment decision-making, driving innovation, risk management and long-term value creation.
This practitioner’s guide to ESG as a corporate strategy explores the business case for ESG, provides practical frameworks and methodologies for implementation and offers strategies for integrating it into an organisation.
Why ESG Matters
The traditional shareholder-centric focus of businesses is being challenged by a growing demand for transparency and accountability on ESG issues from a range of stakeholders.
Impact investing is surging with investors using ESG data to assess risks and opportunities and helping companies improve their ESG performance. Investors are focusing on risk mitigation and seeking opportunities that yield substantial environmental, social and financial dividends.
Consumers increasingly prefer brands committed to sustainability, ethical sourcing and social responsibility, seeking sustainable packaging options like refillable packs, signalling that brand loyalty is intertwined with a company’s ESG performance.
Governments are framing stringent environmental regulations to ensure greater transparency on social and governance issues. ESG reporting is becoming mandatory in many jurisdictions and companies are under increasing scrutiny to ensure greater ESG transparency and accountability.
For instance, the Securities and Exchange Board of India (SEBI) has introduced Business Responsibility and Sustainability Reporting (BRSR) for listed entities, requiring them to disclose their performance on various ESG parameters. Also, besides offering tax and financial incentives, governments are issuing green bonds to finance green projects, creating opportunities for investors.
Increasingly, qualified professionals prefer to work for organisations that have a clear purpose and are making a positive impact on both environment and social front.
Strong ESG performance helps companies mitigate environmental liabilities and regulatory fines, protecting shareholder value. It also creates opportunities for growth and innovation—investing in renewable energy lowers costs, sustainable products meet consumer demand and strong governance enhances efficiency while reducing fraud and corruption.
Driving Sustainable Mobility
Driven by a strategy that revolves around sustainable mobility, Tata Motors has emerged as an electric vehicle (EV) pioneer in the Indian market, launching popular electric models and investing in EV infrastructure.
Tata Motors’ manufacturing process is focused on minimising energy and water consumption, cutting waste and using renewable energy. Alongside, it is working with ethical sourcing practices and suppliers to improve the sustainability of its supply chain.
The company is involved in various community development initiatives, focusing on education, healthcare and skill development.
